UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30,~~December 31, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-33003

CITIZENS COMMUNITY BANCORP, INC.

(Exact name of registrant as specified in its charter)



Maryland		20-5120010
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

2174 EastRidge Center, Eau Claire, WI 54701

(Address of principal executive offices)

715-836-9994

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

At ~~August 12, 2016~~February 13, 2017 there were ~~5,251,998~~5,266,895 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

CITIZENS COMMUNITY BANCORP, INC.

FORM 10-Q

~~June 30,~~December 31, 2016

INDEX



			Page Number
Part I – FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of ~~June 30,~~December 31, 2016 (Unaudited) and September 30, ~~2015~~2016	34
		Consolidated Statements of Operations (Unaudited) for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2016 and 2015	45
		Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the ~~nine~~three months ended ~~June 30,~~December 31, 2016 and 2015	56
		Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the ~~nine~~three months ended ~~June 30,~~December 31, 2016	67
		Consolidated Statements of Cash Flows (Unaudited) for the ~~nine~~three months ended ~~June 30,~~December 31, 2016 and 2015	78
		Condensed Notes to Consolidated Financial Statements (Unaudited)	89
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	54
	Item 4.	Controls and Procedures	56
Part II – OTHER INFORMATION			5657
	Item 1.	Legal Proceedings	5657
	Item 1A.	Risk Factors	5758
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5758
	Item 3.	Defaults Upon Senior Securities	5758
	Item 4.	Mine Safety Disclosures	5758
	Item 5.	Other Information	5758
	Item 6.	Exhibits	5758
SIGNATURES			5859

PART 1 – FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Balance Sheets

~~June 30,~~December 31, 2016 (unaudited) and September 30, ~~2015~~2016

(derived from audited financial statements)

(in thousands, except share data)


	June 30, 2016			September 30, 2015			December 31, 2016			September 30, 2016
Assets
Cash and cash equivalents	$	21,345		$	23,872		$	20,444		$	10,046
Other interest-bearing deposits	745			2,992			745			745
Investment securities (available for sale securities at fair value of $84,508 and $79,921, and held to maturity securities at cost of $7,163 and $8,012 at June 30, 2016 and September 30, 2015, respectively)	91,671			87,933
Securities available for sale "AFS"							81,136			80,123
Securities held to maturity "HTM"							6,235			6,669
Non-marketable equity securities, at cost	5,034			4,626			5,365			5,034
Loans receivable	584,046			450,510			548,904			574,439
Allowance for loan losses	(6,236		)	(6,496		)	(5,917		)	(6,068		)
Loans receivable, net	577,810			444,014			542,987			568,371
Office properties and equipment, net	5,576			2,669			5,166			5,338
Accrued interest receivable	1,971			1,574			2,073			2,032
Intangible assets	917			104			829			872
Goodwill	4,003			—			4,663			4,663
Foreclosed and repossessed assets, net	911			902			784			776
Other assets	13,026			11,462			15,987			11,196
TOTAL ASSETS	$	723,009		$	580,148		$	686,414		$	695,865


Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	585,224		$	456,298		$	535,112		$	557,677
Federal Home Loan Bank advances	58,874			58,891			73,491			59,291
Other borrowings	11,000			—			11,000			11,000
Other liabilities	4,316			4,424			2,985			3,353
Total liabilities	659,414			519,613			622,588			631,321

Stockholders’ equity:
Common stock— $0.01 par value, authorized 30,000,000, 5,240,114 and 5,232,579 shares issued and outstanding, respectively	52			52
Common stock— $0.01 par value, authorized 30,000,000, 5,261,170 and 5,260,098 shares issued and outstanding, respectively							53			53
Additional paid-in capital	54,793			54,740			54,983			54,963
Retained earnings	8,144			6,245			10,047			9,107
Unearned deferred compensation	(179		)	(288		)	(205		)	(193		)
Accumulated other comprehensive income (loss)	785			(214		)	(1,052		)	614
Total stockholders’ equity	63,595			60,535			63,826			64,544
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	723,009		$	580,148		$	686,414		$	695,865

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Operations (unaudited)

Three ~~and Nine~~ Months Ended ~~June 30,~~December 31, 2016 and 2015 (As Restated)

(in thousands, except per share data)


	Three Months Ended				Nine Months Ended				Three Months Ended
	June 30, 2016		June 30, 2015		June 30, 2016		June 30, 2015		December 31, 2016		December 31, 2015 (As Restated)
Interest and dividend income:
Interest and fees on loans	$	6,072	$	5,304	$	16,623	$	16,275	$	6,530	$	5,250
Interest on investments	402		317		1,267		998		418		424
Total interest and dividend income	6,474		5,621		17,890		17,273		6,948		5,674
Interest expense:
Interest on deposits	1,081		947		2,988		2,845		1,119		956
Interest on FHLB borrowed funds	167		148		496		476		173		165
Interest on other borrowed funds	47		—		47		—		99		—
Total interest expense	1,295		1,095		3,531		3,321		1,391		1,121
Net interest income before provision for loan losses	5,179		4,526		14,359		13,952		5,557		4,553
Provision for loan losses	—		150		75		535		—		75
Net interest income after provision for loan losses	5,179		4,376		14,284		13,417		5,557		4,478
Non-interest income:
Net gains on sale of available for sale securities	43		13		47		60		29		—
Service charges on deposit accounts	410		423		1,164		1,273		398		423
Loan fees and service charges	302		276		886		923		603		321
Other	258		219		676		633		283		206
Total non-interest income	1,013		931		2,773		2,889		1,313		950
Non-interest expense:
Salaries and related benefits	2,378		2,195		6,784		6,548		2,674		2,218
Occupancy	554		589		1,835		2,073		1,068		569
Office	350		317		864		825		281		252
Data processing	445		393		1,274		1,177		472		409
Amortization of core deposit intangible	31		15		66		43		43		14
Advertising, marketing and public relations	174		126		456		410		63		137
FDIC premium assessment	86		98		255		306		83		85
Professional services	182		251		574		840		401		172
Other	453		374		1,006		1,049		378		259
Total non-interest expense	4,653		4,358		13,114		13,271		5,463		4,115
Income before provision for income taxes	1,539		949		3,943		3,035		1,407		1,313
Provision for income taxes	572		337		1,415		1,112		467		466
Net income attributable to common stockholders	$	967	$	612	$	2,528	$	1,923	$	940	$	847
Per share information:
Basic earnings	$	0.18	$	0.12	$	0.48	$	0.37	$	0.18	$	0.16
Diluted earnings	$	0.18	$	0.12	$	0.48	$	0.37	$	0.18	$	0.16
Cash dividends paid	$	—	$	—	$	0.12	$	0.08	$	—	$	—

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

~~Nine~~Three months ended ~~June 30,~~December 31, 2016 and 2015 (As Restated)

(in thousands, except per share data)

Nine Months Ended
June 30, 2016
June 30, 2015
Net income attributable to common stockholders $ 2,528
$ 1,923
Other comprehensive income (loss), net of tax:
Securities available for sale
Net unrealized gains arising during period 1,006
27
Reclassification adjustment for gains included in net income 28
36
Unrealized gains on available for sale securities 1,034
63
Defined benefit plans:
Amortization of unrecognized prior service costs and net (losses) gains (35 ) 1
Total other comprehensive income, net of tax 999
64
Comprehensive income $ 3,527
$ 1,987

~~Reclassifications out of accumulated other comprehensive income for the~~ ~~nine months ended June 30, 2016~~ ~~were as follows:~~

Details about Accumulated Other Comprehensive Income Components Amounts Reclassified from Accumulated Other Comprehensive Income (1) Affected Line Item on the Statement of Operations
Unrealized gains and losses
Sale of securities $ 47
Net gain on sale of available for sale securities
(19 ) Provision for income taxes
Total reclassifications for the period $ 28
Net income attributable to common shareholders

~~(1)~~ ~~Amounts in parentheses indicate decreases to profit/loss.~~



	Three Months Ended
	December 31, 2016			December 31, 2015 (As Restated)
Net income attributable to common stockholders	$	940		$	847
Other comprehensive income (loss), net of tax:
Securities available for sale
Net unrealized losses arising during period	(1,683		)	(190		)
Reclassification adjustment for gains included in net income	17			—
Other comprehensive loss	(1,666		)	(190		)
Comprehensive (loss) gain	$	(726	)	$	657

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

~~Nine~~Three Months Ended ~~June 30,~~December 31, 2016

(in thousands, except shares and per share data)

Additional Paid-In Capital Retained Earnings Unearned Deferred Compensation Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity
Common Stock
Shares Amount
Balance, October 1, 2015 5,232,579
$ 52
$ 54,740
$ 6,245
$ (288 ) $ (214 ) $ 60,535
Net income 2,528
2,528
Other comprehensive income, net of tax 999
999
Forfeiture of unvested shares (22,162 ) (176 ) 176
—
Surrender of restricted shares of common stock (5,309 ) (49 ) (49 )
Common stock awarded under the equity incentive plan 9,091
100
(100 ) —
Common stock options exercised 25,915
153
153
Stock option expense 25
25
Amortization of restricted stock 33
33
Cash dividends ($0.12 per share) (629 ) (629 )
Balance, June 30, 2016 5,240,114
$ 52
$ 54,793
$ 8,144
$ (179 ) $ 785
$ 63,595



					Additional Paid-In Capital			Retained Earnings		Unearned Deferred Compensation			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
	Common Stock
	Shares		Amount
Balance, October 1, 2016	5,260,098		$	53	$	54,963		$	9,107	$	(193	)	$	614		$	64,544
Net income								940								940
Other comprehensive income (loss), net of tax													(1,666		)	(1,666		)
Common stock awarded under the equity incentive plan	2,500				28					(28		)				—
Common stock repurchased	(1,428	)			(16		)									(16		)
Stock option expense					8											8
Amortization of restricted stock										16						16
Balance, December 31, 2016	5,261,170		$	53	$	54,983		$	10,047	$	(205	)	$	(1,052	)	$	63,826

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Cash Flows (unaudited)

~~Nine~~Three Months Ended ~~June 30,~~December 31, 2016 and 2015 (As Restated)

(in thousands, except per share data)


	Nine Months Ended						Three Months Ended
	June 30, 2016			June 30, 2015			December 31, 2016			December 31, 2015 (As Restated)
Cash flows from operating activities:
Net income attributable to common stockholders	$	2,528		$	1,923		$	940		$	847
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premium/discount on securities	851			637			244			280
Depreciation	583			937			282			216
Provision for loan losses	75			535			—			75
Net realized gain on sale of securities	(47		)	(60		)	(29		)	—
Amortization of core deposit intangible	66			43			43			14
Amortization of restricted stock	33			70			16			27
Stock based compensation expense	25			44			8			16
Loss on sale of office properties	—			—			2			—
Provision (benefit) for deferred income taxes	555			(151		)
Net gains from disposals of foreclosed properties	(77		)	(5		)
Provision for valuation allowance on foreclosed properties	—			34
Increase in accrued interest receivable and other assets	(1,218		)	(441		)
(Decrease) increase in other liabilities	(357		)	435
Provision for deferred income taxes							412			34
Net gains (losses) from disposals of foreclosed properties							10			(52		)
(Increase) decrease in accrued interest receivable and other assets							(3,859		)	245
Decrease in other liabilities							(368		)	(500		)
Total adjustments	489			2,078			(3,239		)	355
Net cash provided by operating activities	3,017			4,001
Net cash (used in) provided by operating activities							(2,299		)	1,202
Cash flows from investing activities:
Purchase of investment securities	(15,062		)	(36,695		)	(15,739		)	(9,989		)
Net decrease (increase) in interest-bearing deposits	7,241			(1,250		)
Net increase in interest-bearing deposits							—			(250		)
Proceeds from sale of securities available for sale	17,665			29,286			10,644			—
Principal payments on investment securities	11,301			5,703			1,525			2,441
Proceeds from sale of Federal Home Loan Bank (FHLB) stock	—			650
Purchase of Federal Reserve Bank Stock	(3		)	—
Proceeds from sale of Federal Reserve Bank (FRB) Stock	—			239
Purchase of non-marketable equity securities							(331		)	—
Proceeds from sale of foreclosed properties	892			1,049			270			473
Net (increase) decrease in loans	(5,723		)	11,732
Net decrease (increase) in loans							24,820			(3,592		)
Net capital expenditures	(711		)	(217		)	(118		)	(349		)
Net cash received in business combinations	20,658			—
Net cash received from sale of office properties	—			7			7			—
Net cash provided by investing activities	36,258			10,504
Net cash provided by (used in) investing activities							21,078			(11,266		)
Cash flows from financing activities:
Net decrease in Federal Home Loan Bank advances	(3,017		)	(13,000		)
Increase in other borrowings	11,000			—
Net increase in Federal Home Loan Bank advances							14,200			—
Net (decrease) increase in deposits	(49,225		)	6,686			(22,565		)	1,434
Surrender of restricted shares of common stock	(49		)	(35		)	—			(12		)
Exercise of common stock options	153			299
Termination of director retirement plan/supplemental executive retirement plan	(35		)	—
Repurchase shares of common stock							(16		)	—
Cash dividends paid	(629		)	(419		)	—			—
Net cash used in financing activities	(41,802		)	(6,469		)
Net (decrease) increase in cash and cash equivalents	(2,527		)	8,036
Net cash (used in) provided by financing activities							(8,381		)	1,422
Net increase (decrease) in cash and cash equivalents							10,398			(8,642		)
Cash and cash equivalents at beginning of period	23,872			11,434			10,046			23,872
Cash and cash equivalents at end of period	$	21,345		$	19,470		$	20,444		$	15,230
Supplemental cash flow information:
Cash paid during the period for:
Interest on deposits	$	2,859		$	2,842		$	1,091		$	960
Interest on borrowings	$	495		$	484		$	264		$	164
Income taxes	$	1,211		$	979		$	2		$	690
Supplemental noncash disclosure:
Transfers from loans receivable to foreclosed and repossessed assets	$	542		$	947		$	288		$	323
Fair value of assets acquired, net of cash and cash equivalents	$	168,129		$	—
Fair value of liabilities assumed, net of cash and cash equivalents	$	154,250		$	—

See accompanying condensed notes to unaudited consolidated financial statements.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share data)

(UNAUDITED)

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements include the accounts of Citizens Community Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, Citizens Community Federal N.A. (the "Bank"), and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. As used in this quarterly report, the terms “we”, “us”, “our”, and “Citizens Community Bancorp, Inc.” mean the Company and its wholly owned subsidiary, the Bank, unless the context indicates other meaning.

~~On April 16, 2014, the U.S. Office of the Comptroller of the Currency (the "OCC"), the primary federal regulator for~~

~~the Company and the~~The Bank ~~provided written notice to the Bank of the OCC's approval for the Bank to convert to~~is a national banking association (a "National Bank") and ~~operate~~operates under the title of Citizens Community Federal National Association ("Citizens Community Federal N.A."). The ~~consummation~~Company is a bank holding company, supervised by the Federal Reserve Bank of Minneapolis (the "FRB"), and operates under the ~~conversion to a National Bank was effective as~~title of ~~May 31, 2014.~~

~~On April 18, 2014,~~ Citizens Community Bancorp, Inc. ~~received written notice from~~The U.S. Office of the ~~Federal Reserve Bank~~Comptroller of

~~Minneapolis~~ the Currency (the ~~"FRB"~~"OCC") ~~notifying~~, is the primary federal regulator for the Company ofand the ~~FRB's approval of the Company becoming a bank holding company as~~

~~a result of the proposed conversion of the Bank from a federally-chartered savings bank to a National Bank, which approval~~

~~was also effective as of May 31, 2014.~~Bank.

The consolidated income of the Company is principally derived from the income of the Bank, the Company’s wholly owned subsidiary. The Bank originates ~~residential,~~ commercial, agricultural, residential, consumer and commercial and industrial (C&I) loans and accepts deposits from customers, primarily in Wisconsin, Minnesota and Michigan. The Bank operates 2116 full-service offices, ~~eight~~14 stand-alone locations and 82 branches predominantly located inside Walmart Supercenters.

The Bank is subject to competition from other financial institutions and non-financial institutions providing financial products. Additionally, the Bank is subject to the regulations of certain regulatory agencies and undergoes periodic examination by those regulatory agencies.

In preparing these consolidated financial statements, we evaluated the events and transactions that occurred subsequent to the balance sheet date as of ~~June 30,~~December 31, 2016 and through the date the financial statements were available to be issued for items that should potentially be recognized or disclosed in these consolidated financial statements.

Effective May 16, 2016, Community Bank of Northern Wisconsin ("CBN") was acquired through merger (“Merger”) by the Bank. The Merger was consummated pursuant to the terms of a Plan and Agreement of Merger (“Merger Agreement”), dated February 10, 2016, as amended by the First Amendment to Agreement and Plan of Merger dated as of May 13, 2016 by and among the Bank, Old Murry Bancorp, Inc. ("Old Murry"), the controlling shareholders of Old Murry, and CBN. In accordance with the terms of the Merger Agreement, the Bank agreed to purchase all of the assets and assume all of the liabilities of CBN. The total purchase price paid in cash by the Bank was $17,447, which represented a $16,762 book value of the CBN as of April 30, 2016, less a capital dividend of $4,342 declared by CBN to Old Murry, plus a $5,000 fixed premium and daily interest through May 16, 2016 in the amount of $27. The purchase price was funded by $11,000 of debt, and the remaining $6,447 of cash.

The accompanying consolidated interim financial statements are unaudited. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Unless otherwise stated herein, and except for shares and per share amounts, all amounts are in thousands.

As disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2016, which was filed on December 29, 2016, we have restated the unaudited interim and audited annual financial statements for the fiscal years ended September 30, 2014 and 2015 and the quarterly periods ended December 31, 2015, March 31, 2016 and June 30, 2016 (the “Restated Periods”) due to errors identified in such financial statements related to the accrual for professional expenses for the Restated Periods. The effect of these restatements on the Company's quarterly consolidated statements of operations for the three months ended December 31, 2015 compared to the initially reported results, are as follows: Total non-interest expense increased by $21 for the quarter ended December 31, 2015. Net income decreased by $13 for the quarter ended December 31, 2015. The effects of the restatements on the Company's consolidated balance sheets, consolidated statements of cash flows and earnings per share for the restated quarterly period ended December 31, 2015 were not material. For additional details on the effects of the restatement on certain line items within our previously reported financial statements during the Restated Periods, please refer to the following portions of this Quarterly Report on Form 10-Q: Part 1, Item 1. Financial Statements, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 4. Controls and Procedures, as well as the following portions of our Annual Report on Form 10-K: Explanatory Note Regarding Restatement; Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 8 Financial Statements and Supplementary Data, Note 2, Restatement of Previously Issued Financial Statements, and Item 9A Controls and Procedures.

Principles of Consolidation – The accompanying consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates – Preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, fair value of financial instruments, the allowance for loan losses, valuation of acquired intangible assets, useful lives for depreciation and amortization, indefinite-lived intangible assets and long-lived assets, deferred tax assets, uncertain income tax positions and contingencies. Management does not anticipate any material changes to

estimates made herein in the near term. Factors that may cause sensitivity to the aforementioned estimates include, but are not limited to, external market factors such as market interest rates and unemployment rates, changes to operating policies and procedures, and changes in applicable banking regulations. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period.

Investment Securities; Held to Maturity and Available for Sale – Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of the date of each balance sheet. Securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Held to maturity securities are stated at amortized cost. Investment securities not classified as held to maturity are classified as available for sale. Available for sale securities are stated at fair value, with unrealized holding gains and losses deemed other than temporarily impaired due to non-credit issues being reported in other comprehensive income (loss), net of tax. Unrealized losses deemed other-than-temporary due to credit issues are reported in the Company’s net income in the period in which the losses arise. Interest income includes amortization of purchase premium or accretion of purchase discount. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the estimated lives of the underlying securities.

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. As part of such monitoring, the credit quality of individual securities and their issuer is assessed. Significant inputs used to measure the amount of other-than-temporary impairment related to credit loss include, but are not limited to, default and delinquency rates of the underlying collateral, remaining credit support, and historical loss severities. Adjustments to market value of available for sale securities that are considered temporary are recorded as separate components of equity, net of tax. If the unrealized loss of a security is identified as other-than-temporary based on information available, such as the decline in the creditworthiness of the issuer, external market ratings, or the anticipated or realized elimination of associated dividends, such impairments are further analyzed to determine if credit loss exists. If there is a credit loss, it will be recorded in the Company's consolidated statement of operations. Unrealized losses on available for sale securities, other than credit, will continue to be recognized in other comprehensive income (loss), net of tax. Unrealized losses reflected in the preceding tables have not been included in results of operations because the unrealized loss was not deemed other-than-temporary. Management has determined that more likely than not, the Company neither intends to sell, nor will it be required to sell each debt security before its anticipated recovery, and therefore recovery of cost will occur.

Loans – Loans that management has the intent and ability to hold for the foreseeable future, until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, and net of deferred loan fees and costs. Interest income is accrued on the unpaid principal balance of these loans. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the interest method without anticipating prepayments. Delinquency fees are recognized into income when chargeable, assuming collection is reasonably insured.

Interest income on commercial, mortgage and consumer loans is discontinued according to the following schedules:

•~~Commercial loans, including~~ Commercial/agricultural ~~and C&I~~real estate loans past due 90 days or more;

•Commercial/agricultural non-real estate loans past due 90 days or more;

•Closed end consumer non-real estate loans past due 120 days or more; and

•~~Real~~Residential real estate loans and open ended consumer non-real estate loans past due 180 days or more.

Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for a loan placed on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash basis or cost recovery method, and is generally applied against principal, until qualifying for return to accrual status. Loans are returned to accrual status when payments are made that bring the loan account current with the contractual term of the loan and a 6 month payment history has been established. Interest on impaired loans considered troubled debt restructurings (“TDRs”) or substandard, less than 90 days delinquent, is recognized as income as it accrues based on the revised terms of the loan over

an established period of continued payment. Substandard loans, as defined by the OCC, our primary banking regulator, are loans that are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

~~Real~~Residential real estate loans and open ended consumer loans are charged off to estimated net realizable value less estimated selling costs at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 180 days or more. Closed end consumer loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 120 days or more. Commercial loans, including agricultural

and C&I loans, are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 180 days or more for open ended loans or loans secured by real estate collateral, or the loan becomes 120 days past due or more for loans secured by non-real estate collateral.

The Company defines Acquired Loans as all loans acquired in a business combination accounted for under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 805, "~~90 days~~Business Combinations ~~or more.~~". These loans include, but are not limited to loans accounted for under FASB ASC 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality" as discussed below. All other loans are defined as Originated Loans.

Allowance for Loan Losses – The allowance for loan losses (“ALL”) is a valuation allowance for probable and inherent credit losses in our loan portfolio. Loan losses are charged against the ALL when management believes that the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the ALL. Management estimates the required ALL balance taking into account the following factors: past loan loss experience; the nature, volume and composition of our loan portfolio; known and inherent risks in our loan portfolio; information about specific borrowers’ ability to repay; estimated collateral values; current economic conditions; and other relevant factors determined by management. The ALL consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for certain qualitative factors. The entire ALL balance is available for any loan that, in our management’s judgment, should be charged off.

A loan is impaired when full payment under the loan terms is not expected. Impaired loans consist of all TDRs, as well as individual substandard loans not considered a TDR when full payment under the loan terms is not expected. All TDRs are individually evaluated for impairment. See Note 4,3, “Loans, Allowance for Loan Losses and Impaired Loans” for more information on what we consider to be a TDR. If a TDR or substandard loan is deemed to be impaired, a specific ALL allocation may be established so that the loan is reported, net, at the lower of (a) outstanding principal balance, (b) the present value of estimated future cash flows using the loan’s existing rate; or (c) at the fair value of any collateral, less estimated disposal costs, if repayment is expected solely from the underlying collateral of the loan. For TDRs less than 90 days past due, and certain substandard loans that are less than 90 days delinquent, the likelihood of the loan migrating to over 90 days past due is also taken into account when determining the specific ALL allocation for these particular loans. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, as well as non-TDR commercial loans, are collectively evaluated for impairment, and accordingly, are not separately identified for impairment disclosures.

Loans Acquired through Business Combination with Deteriorated Credit Quality - Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 310-30, "Loan and Debt Securities Acquired with Deteriorated Credit Quality", applies to loans acquired in a business combination that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that we will be unable to collect all contractually required payments receivable. In accordance with this guidance, these loans are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance. The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield”, is recognized as interest income over the life of the loans using a method that approximates the level-yield method. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “nonaccretable difference”, are not recognized as a yield adjustment, a loss accrual, or a valuation allowance, Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairments. Valuation allowances on these impaired loans reflect only losses incurred after the acquisition.

Foreclosed and Repossessed Assets, net – Assets acquired through foreclosure or repossession are initially recorded at fair value, less estimated costs to sell, which establishes a new cost basis. If the fair value declines subsequent to foreclosure or repossession, a valuation allowance is recorded through expense. Costs incurred after acquisition are expensed and are included in non-interest expense, other on our Consolidated Statements of Operations.

Goodwill - Goodwill resulting from the acquisition by merger of CBN was determined as the excess of the fair value of the consideration transferred, over the fair value of the net assets acquired, less liabilities assumed in the acquisition by merger, as of the acquisition date. Goodwill resulting from the selective purchase of loans and deposits from Central Bank in

February 2016 was determined as the excess of the Premium Deposit less the Core Deposit Intangible as of the acquisition date. Goodwill is determined to have an indefinite useful life, and is not amortized. Goodwill is tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed.

~~The following table provides changes in goodwill from September 30, 2015 through June 30, 2016:~~

Balance at beginning of period $ —
Select loans and deposit purchase from Central Bank 435
CBN acquisition 3,568
Valuation allowance —
Balance at end of period $ 4,003

Income Taxes – The Company accounts for income taxes in accordance with the FASB ASC Topic 740, “Income Taxes.” Under this guidance, deferred taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. See Note 7,6, "Income Taxes" for details on the Company’s income taxes.

The Company regularly reviews the carrying amount of its net deferred tax assets to determine if the establishment of a valuation allowance is necessary. If based on the available evidence, it is more likely than not that all or a portion of the Company’s net deferred tax assets will not be realized in future periods, a deferred tax valuation allowance would be established. Consideration is given to various positive and negative factors that could affect the realization of the deferred tax assets. In evaluating this available evidence, management considers, among other things, historical performance, expectations of future earnings, the ability to carry back losses to recoup taxes previously paid, the length of statutory carryforward periods, any experience with utilization of operating loss and tax credit carryforwards not expiring, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. Accordingly, the Company’s evaluation is based on current tax laws as well as management’s expectations of future performance.

Earnings Per Share – Basic earnings per common share is net income or loss divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable during the period, consisting of stock options outstanding under the Company’s stock incentive plans that have an exercise price that is less than the Company's stock price on the reporting date.

Operating Segments—While our chief decision makers monitor the revenue streams of the various banking products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the

Company’s banking operations are considered by management to be aggregated in one reportable operating segment.

Reclassifications – Certain items previously reported were reclassified for consistency with the current presentation.

Recent Accounting Pronouncements - In June, 2016 the FASB issued Accounting Standards Update ("ASU") 2016-13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the excepted credit losses on financial instruments and other commitments to extend credit. For public entities, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company has not yet evaluated the potential effects of adopting ASU 2016-13 on the Company’s consolidated results of operations, financial position or cash flows.

In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606); Narrow-Scope Improvements and Practical Expedients.” ASU 2016-12 is intended to address certain specific issues identified by the FASB-IASB Joint Transition Resource Group for Revenue Recognition with respect to ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” For public entities, ASU 2016-12 is effective on a retrospective basis for the annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is not permitted. The Company expects the adoption of ASU 2016-12 will have no material effect on the Company's consolidated results of operations, financial position or cash flows.

In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 is intended to simplify certain areas of share-based payment

transaction accounting, including the income tax consequences, equity or liability classification of certain share awards, and classification on the statement of cash flows. ASU 2016-09 is effective for the annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the effect on the consolidated results of operations, financial position and cash flows.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)". ASU 2016-02 is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for the annual periods, and interim periods

within those annual periods, beginning after December 15, 2018. Early adoption is permitted. The Company expects the adoption of ASU 2016-02 to have no material effect on the Company's consolidated results of operations, financial position or cash flows.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. ASU 2016-01 is intended to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. For public entities, ASU 2016-01 is effective for the annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is not permitted, except for certain provisions of ASU 2016-01, which are not applicable to the Company. The Company expects the adoption of ASU 2016-01 to have no material effect on the Company's consolidated results of operations, financial position or cash flows.

In August 2014, the FASB issued ASU 2014-14, "Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)". ASU 2014-14 is intended to improve accounting and disclosure consistency related to how creditors classify government-guaranteed mortgage loans, including the Federal Housing Administration ("FHA") or United States Department of Veterans Affairs ("VA") guaranteed loans, upon foreclosure. For public entities, ASU 2014-09 is effective on a prospective basis for the annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company has adopted ASU 2014-14 effective December 31, 2015. The adoption of ASU 2014-04 had no effect on the Company's consolidated results of operations, financial position or cash flows.

In January 2014, the FASB issued ASU 2014-04, "Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)". ASU 2014-04 is intended to improve consistency among reporting entities by clarifying when an in substance foreclosure occurs, that is, when a creditor should derecognize a loan and recognize the corresponding real estate collateral as a separate asset. For public entities, ASU 2014-04 is effective for the annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company has adopted ASU 2014-04 effective December 31, 2015. The adoption of ASU 2014-04 had no effect on the Company's consolidated results of operations, financial position or cash flows.

~~NOTE 2 – ACQUISITIONS~~

On May 16, 2016, the Company completed the acquisition through merger of CBN, with the Bank surviving the merger. The Merger was consummated pursuant to the terms of the Merger Agreement, dated February 10, 2016, and as amended on May 13, 2016. The Merger expands our presence in our Rice Lake, Wisconsin market with five additional branches.

Under the terms of the Merger Agreement, the total purchase price paid in cash by the Bank was $17,447, which represented a $16,762 book value of CBN as of April 30, 2016, less a capital dividend of $4,342 declared by CBN, plus a $5,000 fixed premium and daily interest through May 16, 2016 in the amount of $27. The Merger added $168,129 in assets, $112,327 in loans, $151,020 in deposits, $3,568 in goodwill, and $607 in a core deposit intangible. Acquisition costs consisting of accounting, legal and other professional fees were approximately $312 through June 30, 2016 and were accrued for in non-interest expense.

~~The following is a reconciliation of cash paid, net assets acquired, net of fair value adjustments, and goodwill resulting from the acquisition of CBN as of the acquisition date:~~

(Dollars in thousands)
Debt issued by buyer $ 11,000

Cash paid by buyer 6,447

Total consideration paid for CBN $ 17,447

CBN's net assets at fair value:
CBN net assets acquired $ 12,510

Adjustments to reflect assets acquired at fair value:
Investment securities discount/premium, net (108 ) (2)
Performing loans (164 ) (3)
Nonperforming loans (1,168 ) (3)
Allowance for loan losses 1,832
(3)
Property and equipment, net 88
(4)
Deposits 282
(6)
Less: adjusted identifiable net assets acquired $ 13,272

Other intangibles:
Adjustment to recognize other intangibles (607 ) (5)

Total goodwill $ 3,568
(7)

~~The acquisition of the net assets of CBN constitutes a business combination as defined by FASB ASC Topic 805, "Business Combinations." Accordingly, the assets acquired and liabilities assumed are presented at their fair values at acquisition date. Fair values were determined based on the requirements of FASB ASC Topic 820,~~ ~~Fair Value Measurements~~. In many cases, the determination of these fair values required management to make estimates regarding discount rates, future expected cash flows, market conditions and other future events that are highly objective in nature and subject to change. The following schedule is a breakdown of the assets acquired, liabilities assumed, related fair value adjustments, and resulting goodwill:

Community Bank of Northern Wisconsin Fair Value Adjustments Fair Value
Assets (Dollars in thousands)
Cash and cash equivalents $ 28,104
$ —
$ 28,104
Other interest bearing deposits 5,000
(6 ) (2) 4,994
Investment securities 16,825
(102 ) (2) 16,723
Federal Home Loan Bank stock 405
—
405
Loans receivable 113,659
(1,332 ) (3) 112,327
Allowance for loan losses (1,832 ) 1,832
(3) —
Loans receivable, net 111,827
500
112,327
Office properties and equipment, net 2,741
88
(4) 2,829
Accrued interest receivable 540
—
540
Intangible assets —
607
(5) 607
Foreclosed and repossessed assets, net 265
—
265
Other assets 1,335
—
1,335
TOTAL ASSETS $ 167,042
$ 1,087
$ 168,129

Liabilities and Stockholders’ Equity
Liabilities:
Deposits $ 151,302
$ (282 ) (6) $ 151,020
Federal Home Loan Bank advances 3,000
—
3,000
Other liabilities 230
—
230
Total liabilities 154,532
(282 ) 154,250
Stockholders’ equity:
Common stock —
—
—
Additional paid-in capital 12,510
(12,510 ) (7) —
Retained earnings —
—
—
Unearned deferred compensation —
—
—
Accumulated other comprehensive loss —
—
—
Total stockholders’ equity 12,510
(12,510 ) —
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 167,042
$ (12,792 ) $ 154,250
Net assets acquired 13,879
Purchase price 17,447
Goodwill $ 3,568

~~The following is a description of the methods used to determine, and adjustments necessary to present, the fair values of significant assets and liabilities presented above:~~

~~Cash and cash equivalents-The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.~~

~~Other interest bearing deposits-Other interest bearing deposits were acquired from CBN with a $6 adjustment (2) to market value based upon quoted market prices or other observable outputs.~~

~~Investment Securities-Investment securities were acquired from CBN with a $102 adjustment (2) to market value based upon quoted market prices or other observable outputs.~~

~~Federal Home Loan Bank (FHLB) stock-Non-marketable investments in FHLB stock are carried at cost, which is their redeemable fair value since the market for each category of this stock is restricted.~~

~~Loans Receivable-~~Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan, related collateral, classification status, interest rate, term of the loan, whether the loan was amortizing, and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns.

~~We evaluated $111,519 of loans purchased in conjunction with the acquisition in accordance with the provisions of FASB ASC Topic 310-20,~~ ~~Nonrefundable Fees and Other Costs~~, and those loans were recorded with a $164 discount, included in fair value adjustment (3) above. As a result, the fair value discount on these loans is being accreted into interest income over the weighted average life of the loans, using a constant yield method. The remaining $2,140 of loans evaluated were considered purchased credit impaired loans within the provisions of FASB ASC Topic 310-30, ~~Loans and Debt Securities Acquired with Deteriorated Credit Quality~~, and were recorded with a $1,168 discount, which is included in fair value adjustment (3) above. These purchased credit impaired loans will recognize interest income through accretion of the difference between the carrying amount of the loans and the expected cash flows.

~~Office properties and equipment-~~The fair values of office properties and equipment were based on the appraised value of the property. The fair value adjustment (4) of $88 will be amortized over the remaining economic life of the properties, which is estimated to be 25 years.

~~Accrued interest receivable-Accrued interest receivable was acquired at market value.~~

~~Intangible assets-~~Core deposit intangible assets represent the value of the relationships that CBN had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, and the net maintenance cost attributable to customer deposits. The Company recorded $607 of gross core deposit intangible as a result of the CBN acquisition, fair value adjustment (5) above, which will be amortized over seven years.

~~Foreclosed and repossessed assets-The carrying amount of these acquired assets were deemed to be a reasonable estimate of their fair value at the date of acquisition.~~

~~Other assets-~~ ~~The carrying amount of these acquired assets were deemed to be a reasonable estimate of their fair value at the date of acquisition.~~

~~Deposits-~~The fair value of deposits with no stated maturity, such as demand deposits, savings accounts, and money market accounts, is the amount payable on demand at the reporting date. The fair value of fixed rate certificate accounts is calculated by using discounted cash flows applying interest rates currently being offered on similar certificates. The Company determined that the fair value of fixed rate certificate deposits exceeded book value by $282; fair value adjustment (6) above. This fair value adjustment will be amortized over the weighted average life of these deposits, which is estimated to be 17 months.

~~FHLB advances and other borrowings-~~The fair value of long-term borrowed funds is estimated using discounted cash flows based on the Bank’s current incremental borrowing rates for similar borrowing arrangements. The carrying value of short-term borrowed funds approximates their fair value.

~~Other liabilities-~~ ~~The carrying amount of these acquired assets were deemed to be a reasonable estimate of their fair value at the date of acquisition.~~

~~Stockholders' equity-All equity of the acquired CBN entity was eliminated as a result of the acquisition; fair value adjustment (7) above.~~

The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the acquisition. We will continue to review the estimated fair values of loans, deposits, property and equipment, intangible assets, and other assets

~~and liabilities. Our operating results for the period ended June 30, 2016, include the operating results of the acquired assets and assumed liabilities subsequent to the acquisition date.~~

The following unaudited pro forma condensed financial information presents our results of operations, including the effects of the purchase accounting adjustments and acquisition expenses, had the acquisition taken place at the beginning of the period presented:

Citizens Community Bancorp, Inc. Year Ended 09/30/2015 Community Bank of Northern Wisconsin Year Ended 12/31/2015 Pro Forma Adjustments Pro Forma Combined
Interest and dividend income:
Interest and fees on loans $ 21,641
$ 5,698
$ 27
(3) $ 27,366
Interest and dividends on investments 1,363
469
—
1,832
Total interest and dividend income 23,004
6,167
27
29,198
Interest expense:
Interest on deposits 3,808
956
199
(6) 4,963
Interest on borrowed funds 630
31
367
(1) 1,028
Total interest expense 4,438
987
566
5,991
Net interest income before provision for loan losses 18,566
5,180
(539 ) 23,207
Provision for loan losses 656
84
—
740
Net interest income after provision for loan losses 17,910
5,096
(539 ) 22,467
Non-interest income 3,913
463
—
4,376
Non-interest expense 17,719
4,123
91
(4) (5) 21,933
Income before provision for income tax 4,104
1,436
(630 ) 4,910
Provision for income taxes 1,490
18
—
1,508
Net income attributable to common stockholders $ 2,614
$ 1,418
$ (630 ) $ 3,402

Per share information:
Basic earnings $ 0.50
$ 0.65
Diluted earnings $ 0.50
$ 0.65

~~The following is a description of the methods used to determine the pro forma adjustments presented above:~~

(1) Annual interest expense of $367; represents interest on debt incurred to partially fund the acquisition of CBN. Interest expense was based on $11,000 borrowings at an annual interest rate of 3.3366%.

~~Pro forma adjustments to non-interest expense consist of the following:~~

~~(3) Fair value adjustment to performing loans of $164, amortized over 72 months; the weighted average remaining life of the loans, or ($27) annually.~~

~~(4) Fair value adjustment to office properties and equipment of $88, amortized over the estimated remaining life of the buildings of 25 years, or $4 annually.~~

~~(5) Core deposit intangible of $607, amortized over the estimated life of the intangible asset of seven years, or $87 annually.~~

~~(6) Fair value adjustment to deposits of $282, amortized over the weighted average life of the deposits of 17 months, or $199 annually.~~

Selectively purchased loans and deposits - Central Bank - In February 2016, the Bank selectively purchased loans and deposit from Central Bank in Rice Lake and Barron, Wisconsin. The fair value of the acquired assets totaled $17,323, including $10,001 in cash, $16,363 in loans and $786 in fixed and other assets. The Bank also assumed $27,131 in deposits, for which it paid a deposit premium of $707, as part of the transaction. The assets and liabilities relating to these selectively purchased loans and deposits were recorded on the Bank’s balance sheet at their preliminary fair values as of February 5, 2016 and the related results of operations for these branches have been included in the Company's consolidated statement of comprehensive income

since that date. Based on the preliminary purchase price allocation, the Corporation recorded $435 in goodwill and $272 in core deposit intangibles. These fair value estimates are provisional amounts based on third party valuations that are currently under review. The goodwill for this transaction is deductible for income tax purposes.

NOTE 32 – FAIR VALUE ACCOUNTING

ASC Topic 820-10, “Fair Value Measurements and Disclosures” establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The statement describes three levels of inputs that may be used to measure fair value:

Level 1- Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

Level 2- Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3- Significant unobservable inputs that reflect the Company’s assumptions about the factors that market participants would use in pricing an asset or liability.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input within the valuation hierarchy that is significant to the fair value measurement.

The fair value of securities available for sale is determined by obtaining market price quotes from independent third parties wherever such quotes are available (Level 1 inputs); or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). Where such quotes are not available, the Company utilizes independent third party valuation analysis to support the Company’s estimates and judgments in determining fair value (Level 3 inputs).

1713

Assets Measured on a Recurring Basis

The following tables present the financial instruments measured at fair value on a recurring basis as of ~~June 30,~~December 31, 2016 and September 30, ~~2015~~2016:


	Fair Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2016
December 31, 2016
Investment securities:
U.S. government agency obligations	$	14,737	$	—	$	14,737	$	—	$	15,079	$	—	$	15,079	$	—
Obligations of states and political subdivisions	33,773		—		33,773		—		32,147		—		32,147		—
Mortgage-backed securities	35,559		—		35,559		—		33,416		—		33,416		—
Federal Agricultural Mortgage Corporation	65		—		65		—		116		—		116		—
Trust preferred securities	374		—		—		374		378		—		—		378
Total	$	84,508	$	—	$	84,134	$	374	$	81,136	$	—	$	80,758	$	378
September 30, 2015
September 30, 2016
Investment securities:
U.S. government agency obligations	$	15,020	$	—	$	15,020	$	—	$	16,407	$	—	$	16,407	$	—
Obligations of states and political
subdivisions	27,407		—		27,407		—
Obligations of states and political subdivisions									34,012		—		34,012		—
Mortgage-backed securities	37,440		—		37,440		—		29,247		—		29,247		—
Federal Agricultural Mortgage Corporation	54		—		54		—		81		—		81		—
Trust preferred securities									376		—		—		376
Total	$	79,921	$	—	$	79,921	$	—	$	80,123	$	—	$	79,747	$	376

The following table presents additional information about the security available for sale measured at fair value on a recurring basis and for which the Company utilized significant unobservable inputs (Level 3 inputs) to determine fair value for the three months ended December 31, 2016 and year ended September 30, 2016:



	Fair value measurements using significant unobservable inputs (Level 3)
Securities available for sale	Three months ended December 31, 2016		Year ended September 30, 2016
Balance, beginning of period	$	376	$	—
Payments received	—		—
Total gains or losses (realized/unrealized)
Included in earnings	2		—
Included in other comprehensive income	—		—
Transfers in and/or out of Level 3	—		376
Balance, end of period	$	378	$	376

Assets Measured on a Nonrecurring Basis

The following tables present the financial instruments measured at fair value on a nonrecurring basis as of ~~June 30,~~December 31, 2016 and September 30, ~~2015~~2016:


	Fair Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2016
December 31, 2016
Foreclosed and repossessed assets, net	$	911	$	—	$	—	$	911	$	784	$	—	$	—	$	784
Impaired loans with allocated allowances	2,352		—		—		2,352		2,287		—		—		2,287
Total	$	3,263	$	—	$	—	$	3,263	$	3,071	$	—	$	—	$	3,071
September 30, 2015
September 30, 2016
Foreclosed and repossessed assets, net	$	902	$	—	$	—	$	902	$	776	$	—	$	—	$	776
Impaired loans with allocated allowances	2,349		—		—		2,349		2,412		—		—		2,412
Total	$	3,251	$	—	$	—	$	3,251	$	3,188	$	—	$	—	$	3,188

The fair value of impaired loans referenced above was determined by obtaining independent third party appraisals and/or internally developed collateral valuations to support the Company’s estimates and judgments in determining the fair value of the underlying collateral supporting impaired loans.

The fair value of foreclosed and repossessed assets was determined by obtaining market price valuations from independent third parties wherever such quotes were available for other collateral owned. The Company utilized independent third party appraisals to support the Company’s estimates and judgments in determining fair value for other real estate owned.

The following table represents additional quantitative information about assets measured at fair value on a

recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine their fair value at

~~June 30,~~December 31, 2016.


	Fair Value		Valuation Techniques (1)	Significant Unobservable Inputs (2)	Range	Fair Value		Valuation Techniques (1)	Significant Unobservable Inputs (2)	Range
June 30, 2016
December 31, 2016
Foreclosed and repossessed assets, net	$	911	Appraisal value	Estimated costs to sell	10 - 15%	$	784	Appraisal value	Estimated costs to sell	10 - 15%
Impaired loans with allocated allowances	$	2,352	Appraisal value	Estimated costs to sell	10 - 15%	$	2,287	Appraisal value	Estimated costs to sell	10 - 15%
September 30, 2015
September 30, 2016
Foreclosed and repossessed assets, net	$	902	Appraisal value	Estimated costs to sell	10 - 15%	$	776	Appraisal value	Estimated costs to sell	10 - 15%
Impaired loans with allocated allowances	$	2,349	Appraisal value	Estimated costs to sell	10 - 15%	$	2,412	Appraisal value	Estimated costs to sell	10 - 15%

(1) Fair value is generally determined through independent third-party appraisals of the underlying

collateral, which generally includes various level 3 inputs which are not observable.

(2) The fair value basis of impaired loans and real estate owned may be adjusted to reflect management

estimates of disposal costs including, but not limited to, real estate brokerage commissions, legal fees,

and delinquent property taxes.

Fair Values of Financial Instruments

ASC 825-10 and ASC 270-10, Interim Disclosures about Fair Value Financial Instruments, require disclosures about fair value financial instruments and significant assumptions used to estimate fair value. The estimated fair values of financial instruments not previously disclosed are determined as follows:

Cash and Cash Equivalents

Due to their short-term nature, the carrying amounts of cash and cash equivalents are considered to be a reasonable estimate of fair value and represents a level 1 measurement.

Other Interest-Bearing Deposits

Fair value of interest bearing deposits is estimated using a discounted cash flow analysis based on current interest rates being offered by instruments with similar terms and represents a level 3 measurement.

Non-marketable Equity Securities, at cost

Non-marketable equity securities are comprised of Federal Home Loan Bank stock and Federal Reserve Bank stock carried at cost, which are their redeemable fair values since the market for each category of this stock is restricted and represents a level 1 measurement.

Loans Receivable, net

Fair value is estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as real estate, C&I and consumer. The fair value of loans is calculated by discounting scheduled cash flows through the estimated maturity date using market discount rates reflecting the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Bank’s repayment schedules for each loan classification. The fair value of variable rate loans approximates carrying value. The net carrying value of the loans acquired through the CBN acquisition approximates the fair value of the loans at ~~June 30,~~December 31, 2016. The fair value of loans is considered to be a level 3 measurement.

Impaired Loans (carried at fair value)

Impaired loans are loans in which the Company has measured impairment, generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Foreclosed Assets (carried at fair value)

Foreclosed assets are the only non-financial assets valued on a non-recurring basis which are held by the Company at fair value, less cost to sell. At foreclosure or repossession, if the fair value, less estimated costs to sell, of the collateral acquired (real estate, vehicles, equipment) is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loan losses. Additionally, valuations are periodically performed by management and any subsequent reduction in value is recognized by a charge to income. The fair value of foreclosed assets held-for-sale is estimated using Level 3 inputs based on observable market data.

Accrued Interest Receivable and Payable

Due to their short-term nature, the carrying amounts of accrued interest receivable and payable are considered to be a reasonable estimate of fair value and represents a level 1 measurement.

Deposits

The fair value of deposits with no stated maturity, such as demand deposits, savings accounts, and money market accounts, is the amount payable on demand at the reporting date and represents a level 1 measurement. The fair value of fixed rate certificate accounts is calculated by using discounted cash flows applying interest rates currently being offered on similar certificates and represents a level 3 measurement. The net carrying value of fixed rate certificate accounts acquired through the CBN acquisition approximates the fair value of the ~~loans~~certificates at ~~June 30,~~December 31, 2016 and represents a level 3 measurement.

Federal Home Loan Bank Advances

The fair value of long-term borrowed funds is estimated using discounted cash flows based on the Bank’s current incremental borrowing rates for similar borrowing arrangements. The carrying value of short-term borrowed funds approximates their fair value and represents a level 2 measurement.

Off-Balance Sheet Instruments

The fair value of off-balance sheet commitments would be estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the current interest rates, and the present creditworthiness of the customers. Since this amount is immaterial to the Company’s consolidated financial statements, no amount for fair value is ~~presented.~~

~~The~~presented.The table below represents what we would receive to sell an asset or what we would have to pay to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount and estimated fair value of the Company's financial instruments as of the dates indicated below were as follows:


	June 30, 2016				September 30, 2015					December 31, 2016				September 30, 2016
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Valuation Method Used	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	21,345	$	21,345	$	23,872	$	23,872	(Level 1)	$	20,444	$	20,444	$	10,046	$	10,046
Interest-bearing deposits	745		759		2,992		3,022		(Level 1)	745		750		745		760
Investment securities	91,671		91,960		87,933		88,140
Securities available for sale "AFS"									See above	81,136		81,136		80,123		80,123
Securities held to maturity "HTM"									(Level II)	6,235		6,343		6,669		6,944
Non-marketable equity securities, at cost	5,034		5,034		4,626		4,626		(Level II)	5,365		5,365		5,034		5,034
Loans receivable, net	577,810		596,313		444,014		462,227		(Level III)	542,987		555,321		568,371		585,679
Accrued interest receivable	1,971		1,971		1,574		1,574		(Level 1)	2,073		2,073		2,032		2,032
Financial liabilities:
Deposits	$	585,224	$	589,144	$	456,298	$	460,450	(Level III)	$	535,112	$	539,073	$	557,677	$	561,919
FHLB advances	58,874		59,020		58,891		59,357		(Level III)	73,491		73,305		59,291		59,557
Other borrowings									(Level 1)	11,000		11,000		11,000		11,000
Other liabilities	11,000		11,000		—		—		(Level 1)	2,830		2,830		3,353		3,353
Accrued interest payable	130		130		18		18		(Level 1)	155		155		122		122

NOTE 43 – LOANS, ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS

Portfolio Segments:

Residential real estate loans are collateralized by primary and secondary positions on real estate and are underwritten primarily based on borrower's documented income, credit scores, and collateral values. Under consumer home equity loan guidelines, the borrower will be approved for a loan based on a percentage of their home's appraised value less the balance owed on the existing first mortgage. Credit risk is minimized within the residential real estate portfolio as relatively small loan amounts are spread across many individual borrowers. Management evaluates trends in past due loans and current economic factors such as the housing price index on a regular basis.

Commercial and agricultural real estate loans are underwritten after evaluating and understanding the borrower's ability to operate profitably and prudently expand its business. Management examines current and projected cash flows to determine the ability of the borrower to repay its obligations as agreed. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The level of owner-occupied property versus non-owner-occupied property are tracked and monitored on a regular basis. Local commercial real estate municipal loans are based on unrestricted assets, tax base and overall borrowing capacity. Agricultural real estate loans are primarily comprised of loans for the purchase of farmland. Loan-to-value ratios on loans secured by farmland generally do not exceed 75%. Land development loans are underwritten using feasibility studies, independent appraisal reviews and financial analysis of the developers or property owners. Commercial construction loans are based upon estimates of cost and value of the completed project. Commercial construction loans often involve the disbursement of substantial funds with the repayment dependent on the success of the ultimate project. Sources of repayment for these loans may be the sale of the developed property or increased cash flow as a result of business expansion.

Consumer non-real estate loans are comprised of originated indirect paper loans secured primarily by boats and recreational vehicles, purchased indirect paper loans secured primarily by household goods and other consumer loans secured primarily by automobiles and other personal assets. Consumer loans underwriting terms often depend on the collateral type, debt to income ratio and the borrower's creditworthiness as evidenced by their credit score. Collateral value alone may not provide an adequate source of repayment of the outstanding loan balance in the event of a consumer non-real estate default. This shortage is a result of the greater likelihood of damage, loss and depreciation for consumer based collateral.

Commercial non-real estate loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. These cash flows, however, may not be as expected and the value of collateral securing the loans may fluctuate. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. Commercial non-real estate municipal loans may be granted based on the unrestricted assets, tax base and overall borrowing capacity of local governments. Agricultural non-real estate loans are generally comprised of term loans to fund the purchase of equipment, livestock and seasonal operating lines. Operating lines are typically written for one year and secured by the crop and other farm assets as considered necessary. Agricultural loans carry significant credit risks as they may involve larger balances concentrated with single borrowers or groups of related borrowers. In addition, repayment of such loans depends on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized. Farming operations may be affected by adverse weather conditions such as, but not limited to, drought, hail or floods that can severely limit crop yields.

Credit Quality/Risk ~~Ratings~~Ratings::

Management utilizes a numeric risk rating system to identify and quantify the Bank’s risk of loss within its loan portfolio. Ratings are initially assigned prior to funding the loan, and may be changed at any time as circumstances warrant.

Ratings range from the highest to lowest quality based on factors that include measurements of ability to pay, collateral type and value, borrower stability and management experience. The Bank’s loan portfolio is presented below in accordance with the risk rating framework that has been commonly adopted by the federal banking agencies. The definitions of the various risk rating categories are as follows:

1 through 4 - Pass. A "Pass" loan means that the condition of the borrower and the performance of the loan is satisfactory or better.

5 - Watch. A "Watch" loan has clearly identifiable developing weaknesses that deserve additional attention from management. Weaknesses that are not corrected or mitigated, may jeopardize the ability of the borrower to repay the loan in the future.

6 - Special Mention. A "Special Mention" loan has one or more potential weakness that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position in the future.

7 - Substandard. A "Substandard" loan is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

8 - Doubtful. A "Doubtful" loan has all the weaknesses inherent in a Substandard loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

9 - Loss. Loans classified as "Loss" are considered uncollectible, and their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, and a partial recovery may occur in the future.

Below is a summary of originated and acquired loans by type and risk rating as of ~~June 30,~~December 31, 2016:

Originated Loans: 1 to 5 6 7 8 9 TOTAL
Real estate loans:
Consumer $ 167,989
$ —
$ 1,738
$ —
$ —
$ 169,727
Commercial/agricultural 95,658
—
—
—
—
95,658
Total real estate loans 263,647
—
1,738
—
—
265,385
Consumer and other loans: 207,549
11
577
—
—
208,137
Total originated loans $ 471,196
$ 11
$ 2,315
$ —
$ —
$ 473,522
Acquired Loans:
Real estate loans:
Consumer $ 24,089
$ 607
$ 892
$ 236
$ —
$ 25,824
Commercial/agricultural 57,337
182
3,444
—
—
60,963
Total real estate loans 81,426
789
4,336
236
—
86,787
Consumer and other loans: 22,964
41
40
—
1
23,046
Total acquired loans $ 104,390
$ 830
$ 4,376
$ 236
$ 1
$ 109,833
Total Loans:
Real estate loans:
Consumer $ 192,078
$ 607
$ 2,630
$ 236
$ —
$ 195,551
Commercial/agricultural 152,995
182
3,444
—
—
156,621
Total real estate loans 345,073
789
6,074
236
—
352,172
Consumer and other loans: 230,513
52
617
—
1
231,183
Gross loans $ 575,586
$ 841
$ 6,691
$ 236
$ 1
$ 583,355
Net deferred loan costs (fees) and acquisition loan discount 691
Allowance for loan losses (6,236 )
Loans receivable, net $ 577,810



	1 to 5		6		7		8		9		TOTAL
Originated Loans:
Residential real estate:
One to four family	$	149,213	$	—	$	1,967	$	—	$	—	$	151,180
Commercial/Agricultural real estate:
Commercial real estate	62,724		—		—		—		—		62,724
Agricultural real estate	4,803		—		—		—		—		4,803
Multi-family real estate	15,550		—		—		—		—		15,550
Construction and land development	12,812		—		—		—		—		12,812
Consumer non-real estate:
Originated indirect paper	111,264		10		232		—		1		111,507
Purchased indirect paper	44,006		—		—		—		—		44,006
Other Consumer	17,755		—		95		—		1		17,851
Commercial/Agricultural non-real estate:
Commercial non-real estate	20,624		—		179		—		—		20,803
Agricultural non-real estate	9,621		—		—		—		—		9,621
Total originated loans	$	448,372	$	10	$	2,473	$	—	$	2	$	450,857
Acquired Loans:
Residential real estate:
One to four family	$	24,095	$	600	$	189	$	—	$	—	$	24,884
Commercial/Agricultural real estate:
Commercial real estate	28,058		33		353		—		—		28,444
Agricultural real estate	19,844		11		4,278		—		—		24,133
Multi-family real estate	—		—		—		—		—		—
Construction and land development	2,575		—		135		—		—		2,710
Consumer non-real estate:
Other Consumer	591		9		4		—		—		604
Commercial/Agricultural non-real estate:
Commercial non-real estate	11,245		—		1,405		—		—		12,650
Agricultural non-real estate	4,359		7		100		—		—		4,466
Total acquired loans	$	90,767	$	660	$	6,464	$	—	$	—	$	97,891
Total Loans:
Residential real estate:
One to four family	$	173,308	$	600	$	2,156	$	—	$	—	$	176,064
Commercial/Agricultural real estate:
Commercial real estate	90,782		33		353		—		—		91,168
Agricultural real estate	24,647		11		4,278		—		—		28,936
Multi-family real estate	15,550		—		—		—		—		15,550
Construction and land development	15,387		—		135		—		—		15,522
Consumer non-real estate:
Originated indirect paper	111,264		10		232		—		1		111,507
Purchased indirect paper	44,006		—		—		—		—		44,006
Other Consumer	18,346		9		99		—		1		18,455
Commercial/Agricultural non-real estate:
Commercial non-real estate	31,869		—		1,584		—		—		33,453
Agricultural non-real estate	13,980		7		100		—		—		14,087
Gross loans	$	539,139	$	670	$	8,937	$	—	$	2	$	548,748
Less:
Net deferred loan costs (fees)											156
Allowance for loan losses											(5,917		)
Loans receivable, net											$	542,987

2120

Below is a summary of originated loans by type and risk rating as of September 30, ~~2015:~~2016:

1 to 5 6 7 8 9 TOTAL
Real estate loans:
Consumer $ 179,946
$ —
$ 1,260
$ —
$ —
$ 181,206
Commercial/agricultural 63,266
—
—
—
—
63,266
Total real estate loans 243,212
—
1,260
—
—
244,472
Consumer and other loans: 203,054
—
547
—
7
203,608
Gross loans $ 446,266
$ —
$ 1,807
$ —
$ 7
$ 448,080
Net deferred loan costs (fees) 2,430
Allowance for loan losses (6,496 )
Loans receivable, net $ 444,014



	1 to 5		6		7		8		9		TOTAL
Originated Loans:
Residential real estate:
One to four family	$	159,244	$	—	$	1,632	$	—	$	85	$	160,961
Commercial/Agricultural real estate:
Commercial real estate	58,768		—		—		—		—		58,768
Agricultural real estate	3,418		—		—		—		—		3,418
Multi-family real estate	18,935		—		—		—		—		18,935
Construction and land development	12,977		—		—		—		—		12,977
Consumer non-real estate:
Originated indirect paper	118,809		10		254		—		—		119,073
Purchased indirect paper	49,221		—		—		—		—		49,221
Other Consumer	18,889		—		37		—		—		18,926
Commercial/Agricultural non-real estate:
Commercial non-real estate	17,790		—		179		—		—		17,969
Agricultural non-real estate	9,994		—		—		—		—		9,994
Total originated loans	$	468,045	$	10	$	2,102	$	—	$	85	$	470,242
Acquired Loans:
Residential real estate:
One to four family	$	25,613	$	603	$	561	$	—	$	—	$	26,777
Commercial/Agricultural real estate:
Commercial real estate	29,607		167		398		—		—		30,172
Agricultural real estate	21,922		11		2,847		—		—		24,780
Multi-family real estate	200		—		—		—		—		200
Construction and land development	3,487		—		116		—		—		3,603
Consumer non-real estate:
Other Consumer	746		11		32		—		—		789
Commercial/Agricultural non-real estate:
Commercial non-real estate	13,010		11		11		—		—		13,032
Agricultural non-real estate	4,546		7		100		—		—		4,653
Total acquired loans	$	99,131	$	810	$	4,065	$	—	$	—	$	104,006
Total Loans:
Residential real estate:
One to four family	$	184,857	$	603	$	2,193	$	—	$	85	$	187,738
Commercial/Agricultural real estate:
Commercial real estate	88,375		167		398		—		—		88,940
Agricultural real estate	25,340		11		2,847		—		—		28,198
Multi-family real estate	19,135		—		—		—		—		19,135
Construction and land development	16,464		—		116		—		—		16,580
Consumer non-real estate:
Originated indirect paper	118,809		10		254		—		—		119,073
Purchased indirect paper	49,221		—		—		—		—		49,221
Other Consumer	19,635		11		69		—		—		19,715
Commercial/Agricultural non-real estate:
Commercial non-real estate	30,800		11		190		—		—		31,001
Agricultural non-real estate	14,540		7		100		—		—		14,647
Gross loans	$	567,176	$	820	$	6,167	$	—	$	85	$	574,248
Less:
Net deferred loan costs (fees)											191
Allowance for loan losses											(6,068		)
Loans receivable, net											$	568,371

Allowance for Loan Losses - The ALL represents management’s estimate of probable and inherent credit losses in the Bank’s loan portfolio. Estimating the amount of the ALL requires the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may be susceptible to significant change.

There are many factors affecting the ALL; some are quantitative, while others require qualitative judgment. The process for determining the ALL (which management believes adequately considers potential factors which result in probable credit losses), includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for loan losses could be required that could adversely affect the Company’s earnings or financial position in future periods. Allocations of the ALL may be made for specific loans but the entire ALL is available for any loan that, in management’s judgment, should be charged-off or for which an actual loss is realized.

As an integral part of their examination process, various regulatory agencies also review the Bank’s ALL. Such agencies may require that changes in the ALL be recognized when such regulators’ credit evaluations differ from those of our management based on information available to the regulators at the time of their examinations.

Changes in the ALL by loan type for the periods presented below were as follows:


	Consumer Real Estate			Commercial/Agriculture Real Estate		Consumer and Other			Unallocated			Total			Residential Real Estate			Commercial/Agriculture Real Estate			Consumer Non-real Estate			Commercial/Agricultural Non-real Estate		Unallocated		Total
Nine Months Ended June 30, 2016:
Three Months Ended December 31, 2016:
Allowance for Loan Losses:
Beginning balance, October 1, 2015	$	2,364		$	1,617	$	2,263		$	252		$	6,496
Beginning balance, October 1, 2016															$	2,039		$	1,883		$	1,466		$	652	$	28	$	6,068
Charge-offs	(111		)	—		(394		)	—			(505		)	(43		)	—			(172		)	—		—		(215		)
Recoveries	7			—		163			—			170			3			—			61			—		—		64
Provision	30			10		35			—			75			—			—			—			—		—		—
Allowance allocation adjustment	(166		)	249		128			(211		)	—			(187		)	(11		)	(17		)	19		196		—
Total allowance on originated loans	$	2,124		$	1,876	$	2,195		$	41		$	6,236
Purchased credit-impaired loans	$	—		$	—	$	—		$	—		$	—
Total Allowance on originated loans															$	1,812		$	1,872		$	1,338		$	671	$	224	$	5,917
Purchased credit impaired loans															—			—			—			—		—		—
Other acquired loans	—			—		—			—			—			—			—			—			—		—		—
Total allowance on acquired loans	$	—		$	—	$	—		$	—		$	—
Ending balance, June 30, 2016	$	2,124		$	1,876	$	2,195		$	41		$	6,236
Allowance for Loan Losses at June 30, 2016:
Total Allowance on acquired loans															$	—		$	—		$	—		$	—	$	—	$	—
Ending balance, December 31, 2016															$	1,812		$	1,872		$	1,338		$	671	$	224	$	5,917
Allowance for Loan Losses at December 31, 2016:
Amount of allowance for loan losses arising from loans individually evaluated for impairment	$	422		$	—	$	189		$	—		$	611		$	399		$	—		$	46		$	32	$	—	$	477
Amount of allowance for loan losses arising from loans collectively evaluated for impairment	$	1,702		$	1,876	$	2,006		$	41		$	5,625		$	1,413		$	1,872		$	1,292		$	639	$	224	$	5,440
Loans Receivable as of June 30, 2016:
Loans Receivable as of December 31, 2016:																												—
Ending balance of originated loans	$	124,316		$	128,089	$	221,808		$	—		$	474,213		$	149,450		$	95,889		$	175,250		$	30,424	$	—	$	451,013
Ending balance of purchased credit-impaired loans	399			1,762		1,489			—			3,650			256			2,097			4			867		—		3,224
Ending balance of other acquired loans	69,198			26,770		10,215			—			106,183			24,628			53,190			600			16,249				94,667
Ending balance of loans	$	193,913		$	156,621	$	233,512		$	—		$	584,046		$	174,334		$	151,176		$	175,854		$	47,540	$	—	$	548,904
Ending balance: individually evaluated for impairment	$	4,670		$	—	$	914		$	—		$	5,584		$	4,459		$	—		$	609		$	179	$	—	$	5,247
Ending balance: collectively evaluated for impairment	$	189,243		$	156,621	$	232,598		$	—		$	578,462		$	169,875		$	151,176		$	175,245		$	47,361	$	—	$	543,657

2322


	Consumer Real Estate			Commercial/Agriculture Real Estate		Consumer and Other			Unallocated		Total			Residential Real Estate			Commercial/Agriculture Real Estate		Consumer Non-real Estate			Commercial/Agricultural Non-real Estate			Unallocated			Total
Year Ended September 30, 2015:
Year Ended September 30, 2016:
Allowance for Loan Losses:
Beginning balance, October 1, 2014	$	2,759		$	—	$	3,747		$	—	$	6,506
Beginning balance, October 1, 2015														$	2,364		$	989	$	1,620		$	1,271		$	252		$	6,496
Charge-offs	(405		)	—		(601		)	—		(1,006		)	(140		)			(460		)	(118		)	—			(718		)
Recoveries	69			—		271			—		340			11			—		204			—			—			215
Provision	382			16		258			—		656			30			10		35			—			—			75
Allowance allocation adjustment	(441		)	1,601		(1,412		)	252		—			(226		)	884		67			(501		)	(224		)	—
Ending balance, September 30, 2015	$	2,364		$	1,617	$	2,263		$	252	$	6,496
Allowance for Loan Losses at September 30, 2015:
Total Allowance on originated loans														$	2,039		$	1,883	$	1,466		$	652		$	28		$	6,068
Purchased credit impaired loans														—			—		—			—			—			—
Other acquired loans														—			—		—			—			—			—
Total Allowance on acquired loans														$	—		$	—	$	—		$	—		$	—		$	—
Ending balance, September 30, 2016														$	2,039		$	1,883	$	1,466		$	652		$	28		$	6,068
Allowance for Loan Losses at September 30, 2016:
Amount of allowance for loan losses arising from loans individually evaluated for impairment	$	463		$	—	$	119		$	—	$	582		$	503		$	—	$	85		$	40		$	—		$	628
Amount of allowance for loan losses arising from loans collectively evaluated for impairment	$	1,901		$	1,617	$	2,144		$	252	$	5,914		$	1,536		$	1,883	$	1,381		$	612		$	28		$	5,440
Loans Receivable as of September 30, 2015:
Ending balance	$	180,693		$	63,266	$	206,551		$	—	$	450,510
Loans Receivable as of September 30, 2016:																												—
Ending balance of originated loans														$	160,655		$	92,374	$	189,441		$	27,963		$	—		$	470,433
Ending balance of purchased credit-impaired loans														577			2,309		4			897			—			3,787
Ending balance of other acquired loans														26,200			56,446		785			16,788			—			100,219
Ending balance of loans														$	187,432		$	151,129	$	190,230		$	45,648		$	—		$	574,439
Ending balance: individually evaluated for impairment	$	4,466		$	—	$	848		$	—	$	5,314		$	4,640		$	—	$	578		$	179		$	—		$	5,397
Ending balance: collectively evaluated for impairment	$	176,227		$	63,266	$	205,703		$	—	$	445,196		$	182,792		$	151,129	$	189,652		$	45,469		$	—		$	569,042

The Bank has originated ~~most of the~~substantially all loans currently recorded on the Company’s accompanying Consolidated Balance Sheet, except as noted below.

In February 2016, the Bank selectively purchased loans ~~and deposits~~ from Central Bank in Rice Lake and Barron, Wisconsin in the amount of ~~$16,363 and $27,131, respectively.~~$16,363. In May 2016, the Bank acquired loans ~~and deposits~~ from Community Bank of Northern Wisconsin, headquartered in Rice Lake, Wisconsin ~~in the amount of $112,327 and $151,020, respectively.~~totaling $111,740.

During October 2012, the Bank entered into an agreement to purchase short term consumer loans from a third party on an ongoing basis. As part of the servicer agreement entered into in connection with this purchase agreement, the third party seller agreed to purchase or substitute performing consumer loans for all contracts that become 120 days past due. Pursuant to the ongoing loan purchase agreement, ~~a Board of Director determinant was originally established to limit the purchase of these consumer loans under this arrangement to a maximum of $40,000 and~~ a restricted reserve account was established at 3% of the outstanding consumer loan balances purchased up to a maximum of $1,000, with such percentage amount of the loans being deposited into a segregated reserve account. The funds in the reserve account are to be released to compensate the Bank for any purchased loans that are not purchased back by the seller or substituted with performing loans and are ultimately charged off by the Bank. ~~During~~At December 31, 2016, the ~~first quarter~~maximum credit limit for these purchased consumer loans was $50,000. As of ~~fiscal 2015,~~December 31, 2016, the ~~Board of Directors increased the limit~~balance of these purchased consumer loans was $44,006 compared to ~~a maximum~~$49,221 as of ~~$50,000.~~September 30, 2016. As of ~~June~~September 30, 2016,, purchases from the ~~balance of the consumer loans purchased was $47,865~~.third party have been suspended as we review procedures and documentation requirements on any future purchases. The balance in the cash reserve account has reached the maximum allowed balance of $1,000, which is included in Deposits on the accompanying Consolidated Balance Sheet. To date, the Company has not charged off or experienced losses related to the purchased loans.

The weighted average rate earned on these purchased consumer loans was ~~4.24%~~4.27% as of ~~June 30,~~December 31, 2016. From March 2014 through December 2015, the rate earned for all new loan originations of these purchased consumer loans was 4.00%. As of January 2016, new loans purchased ~~are~~were at an interest rate of 4.25% due to the increase in the Prime Rate.

Loans receivable by loan type as of the end of the periods shown below were as follows:


	Real Estate Loans				Commercial/Agriculture Real Estate Loans				Consumer and Other Loans				Total Loans				Residential Real Estate				Commercial/Agriculture Real Estate Loans				Consumer non-Real Estate				Commercial/Agriculture non-Real Estate				Totals
	June 30, 2016		September 30, 2015		June 30, 2016		September 30, 2015		June 30, 2016		September 30, 2015		June 30, 2016		September 30, 2015		December 31, 2016		September 30, 2016		December 31, 2016		September 30, 2016		December 31, 2016		September 30, 2016		December 31, 2016		September 30, 2016		December 31, 2016		September 30, 2016
Performing loans
Performing TDR loans	$	3,006	$	3,206	$	1,078	$	—	$	336	$	472	$	4,420	$	3,678	$	2,616	$	3,955	$	—	$	1,378	$	275	$	288	$	—	$	1,478	$	2,891	$	7,099
Performing loans other	188,315		176,650		154,675		63,266		232,431		205,695		575,421		445,611		170,107		181,734		148,212		148,803		175,184		189,641		45,866		43,892		539,369		564,070
Total performing loans	191,321		179,856		155,753		63,266		232,767		206,167		579,841		449,289		172,723		185,689		148,212		150,181		175,459		189,929		45,866		45,370		542,260		571,169

Nonperforming loans (1)
Nonperforming TDR loans	483		273		482		—		61		59		1,026		332		598		516		—		948		40		43		—		99		638		1,606
Nonperforming loans other	2,109		564		386		—		684		325		3,179		889		1,013		1,227		2,964		—		355		258		1,674		179		6,006		1,664
Total nonperforming loans	2,592		837		868		—		745		384		4,205		1,221		1,611		1,743		2,964		948		395		301		1,674		278		6,644		3,270
Total loans	$	193,913	$	180,693	$	156,621	$	63,266	$	233,512	$	206,551	$	584,046	$	450,510	$	174,334	$	187,432	$	151,176	$	151,129	$	175,854	$	190,230	$	47,540	$	45,648	$	548,904	$	574,439


(1)	Nonperforming loans are either 90+ days past due or nonaccrual.

An aging analysis of the Company’s real estate, commercial/agriculture real estate, consumer and other loans and purchased third party loans as of ~~June 30,~~December 31, 2016 and September 30, ~~2015~~2016, respectively, was as follows:

30-59 Days
Past Due

60-89 Days
Past Due

Greater
Than
89 Days

Total
Past Due
Current
Total
Loans

Recorded
Investment >
89 days and
Accruing
June 30, 2016
Real estate loans $ 996
$ 117
$ 1,623
$ 2,736
$ 191,177
$ 193,913
$ 682
Commercial/Agriculture real estate 84
494
1,719
2,297
154,324
156,621
35
Consumer and other loans 915
900
78
1,893
183,754
185,647
36
Purchased third party loans 302
226
227
755
47,110
47,865
226
Total $ 2,297
$ 1,737
$ 3,647
$ 7,681
$ 576,365
$ 584,046
$ 979
September 30, 2015
Real estate loans $ 555
$ 500
$ 387
$ 1,442
$ 179,251
$ 180,693
$ 244
Commercial/Agriculture real estate —
—
—
—
63,266
63,266
—
Consumer and other loans 386
65
135
586
166,260
166,846
52
Purchased third party loans 238
189
177
604
39,101
39,705
177
Total $ 1,179
$ 754
$ 699
$ 2,632
$ 447,878
$ 450,510
$ 473



	30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days		Total Past Due		Current		Total Loans		Nonaccrual Loans		Recorded Investment > 89 Days and Accruing
December 31, 2016
Residential real estate:
One to four family	$	1,864	$	454	$	1,244	$	3,562	$	172,502	$	176,064	$	976	$	635
Commercial/Agricultural real estate:
Commercial real estate	4		105		104		213		90,955		91,168		460		—
Agricultural real estate	22		1,940		563		2,525		26,411		28,936		2,503		—
Multi-family real estate	—		—		—		—		15,550		15,550		—		—
Construction and land development	—		—		35		35		15,487		15,522		—		—
Consumer non-real estate:
Originated indirect paper	299		58		65		422		111,085		111,507		94		35
Purchased indirect paper	744		272		210		1,226		42,780		44,006		—		210
Other Consumer	150		25		32		207		18,248		18,455		43		14
Commercial/Agricultural non-real estate:
Commercial non-real estate	—		—		157		157		33,296		33,453		1,584		—
Agricultural non-real estate	70		—		90		160		13,927		14,087		90		—
Total	$	3,153	$	2,854	$	2,500	$	8,507	$	540,241	$	548,748	$	5,750	$	894
September 30, 2016
Residential real estate:
One to four family	$	1,062	$	892	$	1,238	$	3,192	$	184,546	$	187,738	$	1,595	$	123
Commercial/Agricultural real estate:
Commercial real estate	33		83		367		483		88,457		88,940		483		—
Agricultural real estate	—		—		623		623		27,575		28,198		623		—
Multi-family real estate	—		—		—		—		19,135		19,135		—		—
Construction and land development	27		—		35		62		16,518		16,580		—		—
Consumer non-real estate:
Originated indirect paper	204		30		122		356		118,717		119,073		158		53
Purchased indirect paper	338		286		199		823		48,398		49,221		—		199
Other Consumer	104		16		34		154		19,561		19,715		54		5
Commercial/Agricultural non-real estate:
Commercial non-real estate	9		2		155		166		30,835		31,001		188		—
Agricultural non-real estate	—		60		90		150		14,497		14,647		90		—
Total	$	1,777	$	1,369	$	2,863	$	6,009	$	568,239	$	574,248	$	3,191	$	380

~~As of June 30, 2016, the balance of acquired loans that are considered past due is $4,255 and the balance of acquired loans considered current is $105,578.~~

At ~~June 30,~~December 31, 2016, the Company has identified ~~$5,446~~impaired loans of $8,543, consisting of $3,529 TDR loans, $3,224 purchased credit impaired loans, and ~~$138~~$1,790 substandard non-TDR loans. The $8,543 total of ~~substandard~~impaired loans ~~as impaired, totaling $5,584, which~~ includes ~~$4,420~~$2,960 of performing TDR loans. A loan is identified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Performing TDRs consist of loans that have been modified and are performing in accordance with the modified terms for a sufficient length of time, generally six months, or loans that were modified on a proactive basis. A summary of the Company’s impaired loans as of ~~June 30,~~December 31, 2016 and September 30, ~~2015~~2016 was as follows:

With No Related Allowance Recorded With An Allowance Recorded Totals
Consumer Real Estate Commercial/Agricultural Real Estate Consumer and Other Total Consumer Real Estate Commercial/Agricultural Real Estate Consumer and Other Total Consumer Real Estate Commercial/Agricultural Real Estate Consumer and Other Total
Recorded investment at June 30, 2016 $ 2,822
$ —
$ 410
$ 3,232
$ 1,848
$ —
$ 504
$ 2,352
$ 4,670
$ —
$ 914
$ 5,584
Unpaid balance at June 30, 2016 2,822
—
410
3,232
1,848
—
504
2,352
4,670
—
914
5,584
Recorded investment at September 30, 2015 2,494
—
471
2,965
1,972
—
377
2,349
4,466
—
848
5,314
Unpaid balance at September 30, 2015 2,494
—
471
2,965
1,972
—
377
2,349
4,466
—
848
5,314
Average recorded investment; nine months ended June 30, 2016 2,762
—
491
3,253
1,787
—
338
2,125
4,549
—
829
5,378
Average recorded investment; twelve months ended September 30, 2015 3,178
—
485
3,663
2,220
—
556
2,776
5,398
—
1,041
6,439
Interest income received; nine months ended June 30, 2016 85
—
31
116
33
—
6
39
118
—
37
155
Interest income received; twelve months ended September 30, 2015 136
—
35
171
61
—
23
84
197
—
58
255



	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2016
With No Related Allowance Recorded:
Residential real estate	$	2,975	$	2,975	$	—	$	4,080	$	27
Commercial/agriculture real estate	2,097		2,097		—		2,212		—
Consumer non-real estate	317		317		—		298		8
Commercial/agricultural non-real estate	867		867		—		1,552		—
Total	$	6,256	$	6,256	$	—	$	8,142	$	35
With An Allowance Recorded:
Residential real estate	$	1,812	$	1,812	$	399	$	1,852	$	12
Commercial/agriculture real estate	—		—		—		—		—
Consumer non-real estate	296		296		46		319		—
Commercial/agricultural non-real estate	179		179		32		179		—
Total	$	2,287	$	2,287	$	477	$	2,350	$	12
December 31, 2016 Totals:
Residential real estate	$	4,787	$	4,787	$	399	$	5,932	$	39
Commercial/agriculture real estate	2,097		2,097		—		2,212		—
Consumer non-real estate	613		613		46		617		8
Commercial/agricultural non-real estate	1,046		1,046		32		1,731		—
Total	$	8,543	$	8,543	$	477	$	10,492	$	47



	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2016
With No Related Allowance Recorded:
Residential real estate	$	3,807	$	3,807	$	—	$	3,817	$	132
Commercial/agriculture real estate	2,326		2,326		—		2,326		27
Consumer non-real estate	247		247		—		451		36
Commercial/agricultural non-real estate	1,577		1,577		—		1,577		42
Total	$	7,957	$	7,957	$	—	$	8,171	$	237
With An Allowance Recorded:
Residential real estate	$	1,891	$	1,891	$	503	$	1,808	$	50
Commercial/agriculture real estate	—		—		—		—		—
Consumer non-real estate	342		342		76		339		10
Commercial/agricultural non-real estate	179		179		27		36		1
Total	$	2,412	$	2,412	$	606	$	2,183	$	61
September 30, 2016 Totals:
Residential real estate	$	5,698	$	5,698	$	503	$	5,625	$	182
Commercial/agriculture real estate	2,326		2,326		—		2,326		27
Consumer non-real estate	589		589		76		790		46
Commercial/agricultural non-real estate	1,756		1,756		27		1,613		43
Total	$	10,369	$	10,369	$	606	$	10,354	$	298

Troubled Debt Restructuring – A TDR includes a loan modification where a borrower is experiencing financial difficulty and the Bank grants a concession to that borrower that the Bank would not otherwise consider except for the borrower’s financial difficulties. Concessions include, but are not limited to, an extension of loan terms, renewals of existing balloon loans, reductions in interest rates and consolidating existing Bank loans at modified terms. A TDR may be either on accrual or nonaccrual status based upon the performance of the borrower and management’s assessment of collectability. If a TDR is placed on nonaccrual status, it remains there until a sufficient period of performance under the restructured terms has occurred at which time it is returned to accrual status. There were 7 delinquent TDRs greater than 5960 days past due with a recorded investment of ~~$816~~$834 at ~~June 30,~~December 31, 2016, compared to 43 such loans with a recorded investment of ~~$191~~$226 at September 30, ~~2015. A~~2016.

Following is a summary of TDR loans by ~~loan type modified in a troubled debt restructuring~~accrual status as of ~~June 30,~~December 31, 2016 and ~~June~~September 30, ~~2015, and during each~~2016. There were no TDR commitments or unused lines of ~~the nine months then ended was~~credit as ~~follows:~~of December 31, 2016.

Consumer Real Estate Commercial/Agricultural Real Estate Consumer and Other Total
June 30, 2016 and
Nine Months then Ended:
Accruing / Performing:
Beginning balance $ 3,206
$ —
$ 472
$ 3,678
Principal balance of acquired loans 74
1,088
—
1,162
Principal payments (86 ) (10 ) (97 ) (193 )
Charge-offs —
—
—
—
Advances 7
—
1
8
New restructured (1) 223
—
6
229
Class transfers out (2) —
—
—
—
Transfers between accrual/non-accrual (418 ) —
(46 ) (464 )
Ending balance $ 3,006
$ 1,078
$ 336
$ 4,420
Non-accrual / Non-performing:
Beginning balance $ 273
$ —
$ 59
$ 332
Principal balance of acquired loans —
267
13
280
Principal payments (133 ) (19 ) (27 ) (179 )
Charge-offs (77 ) (37 ) (31 ) (145 )
Advances 2
—
1
3
New restructured (1) —
—
—
—
Class transfers out (2) —
271
—
271
Transfers between accrual/non-accrual 418
—
46
464
Ending balance $ 483
$ 482
$ 61
$ 1,026
Totals:
Beginning balance $ 3,479
$ —
$ 531
$ 4,010
Principal balance of acquired loans 74
1,355
13
1,442
Principal payments (219 ) (29 ) (124 ) (372 )
Charge-offs (77 ) (37 ) (31 ) (145 )
Advances 9
—
2
11
New restructured (1) 223
—
6
229
Class transfers out (2) —
271
—
271
Transfers between accrual/non-accrual —
—
—
—
Ending balance $ 3,489
$ 1,560
$ 397
$ 5,446



	December 31, 2016		September 30, 2016
Troubled debt restructure loans:
Accrual status	$	3,119	$	3,218
Non-accrual status	410		515
Total	$	3,529	$	3,733


~~(1)~~	~~“New restructured” represent loans restructured during the applicable period that met TDR criteria in accordance with the Bank’s policy at the time of the restructuring.~~


~~(2)~~	“Class transfers out” represent previously restructured loans that are in compliance with the modified terms for a minimum of one year, are yielding a market rate and conform to normal underwriting standards.

Consumer Real Estate Commercial/Agricultural Real Estate Consumer and Other Total
June 30, 2015 and
Nine Months then Ended:
Accruing / Performing:
Beginning balance $ 4,535
$ —
$ 797
$ 5,332
Principal payments (495 ) —
(272 ) (767 )
Charge-offs —
—
(8 ) (8 )
Advances 10
—
—
10
New restructured (1) 17
—
42
59
Class transfers out (2) (181 ) —
—
(181 )
Transfers between accrual/non-accrual (232 ) —
(42 ) (274 )
Ending balance $ 3,654
$ —
$ 517
$ 4,171
Non-accrual / Non-performing:

Beginning balance $ 202
$ —
$ 47
$ 249
Principal payments (104 ) —
(9 ) (113 )
Charge-offs (41 ) —
(31 ) (72 )
Advances —
—
—
—
New restructured (1) —
—
—
—
Class transfers out (2) —
—
—
—
Transfers between accrual/non-accrual 232
—
42
274
Ending balance $ 289
$ —
$ 49
$ 338
Totals:

Beginning balance $ 4,737
$ —
$ 844
$ 5,581
Principal payments (599 ) —
(281 ) (880 )
Charge-offs (41 ) —
(39 ) (80 )
Advances 10
—
—
10
New restructured (1) 17
—
42
59
Class transfers out (2) (181 ) —
—
(181 )
Transfers between accrual/non-accrual —
—
—
—
Ending balance $ 3,943
$ —
$ 566
$ 4,509


~~(1)~~	~~“New restructured” represent loans restructured during the applicable period that met TDR criteria in accordance with the Bank’s policy at the time of the restructuring.~~


~~(2)~~	“Class transfers out” represent previously restructured loans that are in compliance with the modified terms for a minimum of one year, are yielding a market rate and conform to normal underwriting standards.

~~Below is a breakdown of troubled debt restructurings:~~The following provides detail, including specific reserve and reasons for modification, related to loans identified as TDRs during the three months ended December 31, 2016 and the year ended September 30, 2016:

June 30, 2016 September 30, 2015

Number of
Modifications

Recorded
Investment

Number of
Modifications

Recorded
Investment
Troubled debt restructurings:
Consumer Real Estate 34
$ 3,489
34
$ 3,479
Commercial/Agricultural Real Estate 6
1,560
—
—
Consumer and other 26
397
39
531
Total troubled debt restructurings 66
$ 5,446
73
$ 4,010



	Number of Contracts	Modified Rate		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Three months ended December 31, 2016
TDRs:
Residential real estate	2	$	—	$	—	$	73	$	—	$	73	$	73	$	—
Commercial/Agricultural real estate	—	—		—		—		—		—		—		—
Consumer non-real estate	1	—		—		—		4		4		4		—
Commercial/Agricultural non-real estate	—	—		—		—		—		—		—		—
Totals	3	$	—	$	—	$	73	$	4	$	77	$	77	$	—



	Number of Contracts	Modified Rate		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Year ended September 30, 2016
TDRs:
Residential real estate	4	$	37	$	—	$	359	$	—	$	396	$	396	$	74
Commercial/Agricultural real estate	—	—		—		—		—		—		—		—
Consumer non-real estate	3	—		—		21		—		21		21		—
Commercial/Agricultural non-real estate	—	—		—		—		—		—		—		—
Totals	7	$	37	$	—	$	380	$	—	$	417	$	417	$	74

A summary of loans by loan segment modified in a troubled debt restructuring as of December 31, 2016 and September 30, 2016, was as follows:



	December 31, 2016			September 30, 2016
	Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment
Troubled debt restructurings:
Residential real estate	30	$	3,214	32	$	3,413
Commercial/Agricultural real estate	—	—		—	—
Consumer non-real estate	22	315		21	320
Commercial/Agricultural non-real estate	—	—		—	—
Total troubled debt restructurings	52	$	3,529	53	$	3,733

The following table provides information related to restructured loans that were considered in default as of December 31, 2016 and September 30, 2016:



	December 31, 2016			September 30, 2016
	Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment
Troubled debt restructurings:
Residential real estate	9	$	669	9	$	516
Commercial/Agricultural real estate	7	1,787		6	948
Consumer non-real estate	4	40		4	43
Commercial/Agricultural non-real estate	3	1,466		2	99
Total troubled debt restructurings	23	$	3,962	21	$	1,606

Included above are three TDR loans that became in default during the three months ended December 31, 2016 .

All acquired loans were initially recorded at fair value at the acquisition date. The outstanding balance and the carrying amount of acquired loans included in the consolidated balance sheet are as follows:



	~~June 30, 2016~~
~~Accountable for under ASC 310-30 (PCI loans)~~
~~Outstanding balance~~	~~3,650~~
~~Carrying amount~~	~~2,530~~
~~Accountable for under ASC 310-20 (non-PCI loans)~~
~~Outstanding balance~~	~~106,183~~
~~Carrying amount~~	~~106,021~~
~~Total acquired loans~~
~~Outstanding balance~~	~~109,833~~
~~Carrying amount~~	~~108,551~~



	December 31, 2016
Accountable for under ASC 310-30 (PCI loans)
Outstanding balance	$	3,224
Carrying amount	$	1,959
Accountable for under ASC 310-20 (non-PCI loans)
Outstanding balance	$	94,667
Carrying amount	$	94,483
Total acquired loans
Outstanding balance	$	97,891
Carrying amount	$	96,442

The following table provides changes in accretable yield for all acquired loans accounted for under ASC 310-30:

May 16, 2016 to June 30, 2016
Balance at beginning of period $ —
Acquisitions 164
Reduction due to unexpected early payoffs —
Reclass from non-accretable difference —
Disposals/transfers —
Accretion (2 )
Balance at end of period $ 162

~~The following table reflects amounts at acquisition for all purchased loans subject to ASC 310-30 (impaired and non-impaired) acquired from CBN:~~

Acquired Impaired Loans Acquired Performing Loans Total Acquired Loans
Contractually required cash flows at acquisition $ 3,698
$ 109,961
$ 113,659
Non-accretable difference (expected losses and foregone interest) (1,168 ) —
(1,168 )
Cash flows expected to be collected at acquisition 2,530
109,961
112,491
Accretable yield —
(164 ) (164 )
Basis in acquired loans at acquisition $ 2,530
109,797
$ 112,327

~~Our analysis of the acquired impaired and non-impaired loan portfolio is ongoing and will be completed by September 30, 2016.~~



	December 31, 2016
Balance at beginning of period	$	192
Acquisitions	—
Reduction due to unexpected early payoffs	—
Reclass from non-accretable difference	—
Disposals/transfers	—
Accretion	(8		)
Balance at end of period	$	184

NOTE 54 – INVESTMENT SECURITIES

The amortized cost, estimated fair value and related unrealized gains and losses on securities available for sale and held to maturity as of ~~June 30,~~December 31, 2016 and September 30, ~~2015~~2016, respectively, were as follows:


Available for sale securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2016
December 31, 2016
U.S. government agency obligations	$	14,690	$	79	$	32	$	14,737	$	15,695	$	4	$	620	$	15,079
Obligations of states and political subdivisions	32,941		851		19		33,773		32,808		13		674		32,147
Mortgage-backed securities	35,125		440		6		35,559		33,937		50		571		33,416
Federal Agricultural Mortgage Corporation	70		—		5		65		70		46		—		116
Trust preferred securities	374		—		—		374		378		—		—		378
Total available for sale securities	$	83,200	$	1,370	$	62	$	84,508	$	82,888	$	113	$	1,865	$	81,136

September 30, 2015
September 30, 2016
U.S. government agency obligations	$	15,240	$	—	$	220	$	15,020	$	16,388	$	48	$	29	$	16,407
Obligations of states and political subdivisions	27,573		81		247		27,407		33,405		630		23		34,012
Mortgage-backed securities	37,451		133		144		37,440		28,861		389		3		29,247
Federal Agricultural Mortgage Corporation	71		—		17		54		70		11		—		81
Trust preferred securities									376		$	—	$	—	376
Total available for sale securities	$	80,335	$	214	$	628	$	79,921	$	79,100	$	1,078	$	55	$	80,123


Held to maturity securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2016
December 31, 2016
Obligations of states and political subdivisions	$	5,847	$	271	$	—	$	6,118	$	1,314	$	7	$	1	$	1,320
Mortgage-backed securities	1,316		18		—		1,334		4,921		107		5		5,023
Total held to maturity securities	$	7,163	$	289	$	—	$	7,452	$	6,235	$	114	$	6	$	6,343

September 30, 2015
September 30, 2016
Obligations of states and political subdivisions	$	1,319	$	3	$	4	$	1,318	$	1,315	$	20	$	—	$	1,335
Mortgage-backed securities	6,693		208		—		6,901		5,354		255		—		5,609
Total held to maturity securities	$	8,012	$	211	$	4	$	8,219	$	6,669	$	275	$	—	$	6,944

As of ~~June 30,~~December 31, 2016, the Bank has pledged U.S. Government Agency and mortgage backed securities with a carrying value, book value, of ~~$2,857~~$3,107 as collateral against a borrowing line of credit with the Federal Reserve Bank. However, as of ~~June 30,~~December 31, 2016, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of ~~June 30,~~December 31, 2016, the Bank has pledged U.S. Government Agency securities with a carrying value, book value, of ~~$6,164~~$7,820 and mortgage-backed securities with a carrying value, book value, of ~~$21,388~~$20,419 as collateral against specific municipal deposits.

The estimated fair value of securities at ~~June 30,~~December 31, 2016 and September 30, ~~2015,~~2016, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities on mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Expected maturities may differ from contractual maturities on certain agency and municipal securities due to the call feature.


	June 30, 2016				September 30, 2015				December 31, 2016				September 30, 2016
Available for sale securities	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	230	$	230	$	—	$	—	$	230	$	230	$	230	$	230
Due after one year through five years	14,126		14,258		6,451		6,437		11,720		11,568		14,463		14,546
Due after five years through ten years	23,664		24,253		22,667		22,457		30,432		29,661		28,289		28,798
Due after ten years	45,180		45,767		51,217		51,027		40,506		39,677		36,118		36,549
Total available for sale securities	$	83,200	$	84,508	$	80,335	$	79,921	$	82,888	$	81,136	$	79,100	$	80,123


	June 30, 2016				September 30, 2015				December 31, 2016				September 30, 2016
Held to maturity securities	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due after one year through five years	$	1,316	$	1,334	$	1,144	$	1,143	$	1,314	$	1,320	$	1,315	$	1,335
Due after five years through ten years	1,620		1,675		175		175		3,081		3,126		1,504		1,559
Due after ten years	4,227		4,443		6,693		6,901		1,840		1,897		3,850		4,050
Total held to maturity securities	$	7,163	$	7,452	$	8,012	$	8,219	$	6,235	$	6,343	$	6,669	$	6,944

NOTE 65 – FEDERAL HOME LOAN BANK ADVANCES

A summary of Federal Home Loan Bank advances at ~~June 30,~~December 31, 2016 and September 30, ~~2015~~2016 was as follows:


	As of		Weighted Average Rate			As of				Weighted Average Rate		As of				Weighted Average Rate			As of			Weighted Average Rate
Maturing during the fiscal year	June 30,				September 30,				December 31,					September 30,
Ended September 30,	2016				2015				2016					2016
2016	$	23,583		0.52	%		$	33,600					0.67	%
2017	21,461			1.27	%		15,461						1.46	%	$		59,661			0.69	%	$	45,461		0.86	%
2018	10,100		1.74	%		6,100				2.24	%	10,100					1.74	%		6,100			2.24	%
2019	3,730		1.87	%		3,730				1.87	%	3,730				1.87	%		7,730			1.41	%
2020	—		—	%		—				—	%
Total fixed maturity	$	58,874	1.09	%		$	58,891			1.12	%	$	73,491			0.90	%		$	59,291		1.07	%
Advances with amortizing principal	—		—	%		—				—	%	—				—	%		—			—	%
Total advances	$	58,874	1.09	%		$	58,891			1.12	%	$	73,491			0.90	%		$	59,291		1.07	%
Irrevocable standby letters of credit	$	17,560				$	24,040					$	9,560						$	10,560
Total credit outstanding	$	76,434				$	82,931					$	83,051						$	69,851

Other borrowings maturing during the fiscal year ended September 30, 2021												$	11,000			3.57	%		$	11,000		3.44	%

The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank. This irrevocable standby letter of credit ("LOC") is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest bearing deposit balances.

At ~~June 30,~~December 31, 2016, the Bank’s available and unused portion of this borrowing arrangement was approximately $~~67,300~~67,728. The weighted average remaining term of the borrowings at ~~June 30,~~December 31, 2016 is ~~9.66~~5.18 months compared to ~~14.25~~8.32 months at September 30, ~~2015.~~2016.

Maximum month-end amounts outstanding were $~~67,474~~74,291 and $~~53,891~~67,474 during the ~~nine~~three month periods ended ~~June 30,~~December 31, 2016 and 2015, respectively.

Each Federal Home Loan Bank advance is payable at the maturity date, with a prepayment penalty for fixed rate advances. These advances are secured by $~~185,198~~196,765 of real estate mortgage loans.

3231

On May 16, 2016, the Company entered into a Loan Agreement with First Tennessee Bank National Association ("FTN") evidencing an $11,000 term loan maturing on May 15, 2021. The proceeds from the Loan were used by the Company for the sole purpose of financing the acquisition, by merger, of Community Bank of Northern Wisconsin. The Loan bears interest based on LIBOR, and is payable in accordance with the terms and provisions of the term note.

On September 30, 2016, the Company entered into an Amended and Restated Loan Agreement with FTN whereby FTN extended a $3,000 revolving line of credit to the Company for the purpose of financing its previously announced stock repurchase program. At September 30, 2016, the available and unused portion of this borrowing arrangement was $3,000. Under the stock repurchase program, the Company may repurchase up to 525,200 shares of its common stock or approximately

10% of its current outstanding shares, from time to time through October 1, 2017. As of December 31, 2016, 1,428 shares have been repurchased.

NOTE 76 – INCOME TAXES

Income tax expense (benefit) for each of the periods shown below consisted of the following:


	Nine months ended June 30, 2016		Nine months ended June 30, 2015			Three months ended December 31, 2016		Three months ended December 31, 2015 (As Restated)
Current tax provision
Federal	$	647	$	1,094		$	43	$	381
State	190		169			12		64
	837		1,263			55		445
Deferred tax (benefit) provision
Federal	496		(159		)	354		14
State	82		8			58		7
	578		(151		)	412		21
Total	$	1,415	$	1,112		$	467	$	466

The provision for income taxes differs from the amount of income tax determined by applying statutory federal income tax rates to pretax income as result of the following differences:


	Nine months ended June 30, 2016					Nine months ended June 30, 2015					Three months ended December 31, 2016					Three months ended December 31, 2015 (As Restated)
	Amount			Rate		Amount			Rate		Amount			Rate		Amount			Rate
Tax expense at statutory rate	$	1,370		34.0	%	$	1,032		34.0	%	$	478		34.0	%	$	446		34.0	%
State income taxes net of federal taxes	207			5.1		177			5.8		70			5.0		71			5.5
Tax exempt interest	(118		)	(2.9	)	(47		)	(1.6	)	(56		)	(4.0	)	(36		)	(2.7	)
Other	(44		)	(1.1	)	(50		)	(1.5	)	(25		)	(1.8	)	(15		)	(1.2	)
Total	$	1,415		35.1	%	$	1,112		36.7	%	$	467		33.2	%	$	466		35.5	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following is a summary of the significant components of the Company’s deferred tax assets and liabilities as of ~~June 30,~~December 31, 2016 and September 30, ~~2015~~2016, respectively:

June 30, 2016 September 30, 2015
Deferred tax assets:
Allowance for loan losses $ 2,443
$ 2,544
Deferred loan costs/fees 93
145
Director/officer compensation plans 535
536
Net unrealized loss on securities available for sale —
166
Economic performance accruals 189
388
Other 109
132
Deferred tax assets 3,369
3,911
Deferred tax liabilities:
Office properties and equipment (286 ) (114 )
Net unrealized gain on securities available for sale (524 ) —
Other (117 ) (110 )
Deferred tax liabilities (927 ) (224 )
Net deferred tax assets $ 2,442
$ 3,687



	December 31, 2016			September 30, 2016
Deferred tax assets:
Allowance for loan losses	$	2,318		$	2,377
Deferred loan costs/fees	72			77
Director/officer compensation plans	73			299
Net unrealized loss on securities available for sale	701			—
Economic performance accruals	—			131
Other	162			177
Deferred tax assets	3,326			3,061
Deferred tax liabilities:
Office properties and equipment	(267		)	(291		)
Net unrealized gain on securities available for sale	—			(409		)
Other	(98		)	(98		)
Deferred tax liabilities	(365		)	(798		)
Net deferred tax assets	$	2,961		$	2,263

The Company regularly reviews the carrying amount of its deferred tax assets to determine if the establishment of a valuation allowance is necessary, as further discussed in Note 1 “Nature of Business and Summary of Significant Accounting Policies,” above. At ~~June 30,~~December 31, 2016 and September 30, ~~2015~~2016, respectively, management determined that no valuation allowance was necessary for any of the deferred tax assets.

The Company’s income tax returns are subject to review and examination by federal, state and local government authorities. As of ~~June 30,~~December 31, 2016, years open to examination by the U.S. Internal Revenue Service include taxable years ended September 30, 2012 to present. The years open to examination by state and local government authorities varies by jurisdiction.

The tax effects from uncertain tax positions can be recognized in the consolidated financial statements, provided the position is more likely than not to be sustained on audit, based on the technical merits of the position. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applied the foregoing accounting standard to all of its tax positions for which the statute of limitations remained open as of the date of the accompanying consolidated financial statements.

The Company’s policy is to recognize interest and penalties related to income tax issues as components of other noninterest expense. During the ~~nine~~three month periods ended ~~June 30,~~December 31, 2016 and ~~2015,~~2016, the Company did not recognize any interest or penalties related to income tax issues in its consolidated statements of operations. The Company had noa recorded ~~accrual or~~ liability of $0 and $24, which is included in other liabilities in its consolidated balance sheets, for the payment of interest and penalties related to income tax issues as of ~~June 30,~~December 31, 2016 orand September 30, ~~2015~~2016 respectively.

NOTE 87 – STOCK-BASED COMPENSATION

In February 2005, the Company’s stockholders approved the Company’s 2004 Recognition and Retention Plan. This plan provides for the grant of up to 113,910 shares of the Company’s common stock to eligible participants under this plan. As of ~~June 30,~~December 31, 2016, 113,910 restricted shares under this plan were granted. In February 2005, the Company’s stockholders also approved the Company’s 2004 Stock Option and Incentive Plan. This plan provides for the grant of nonqualified and incentive stock options and stock appreciation rights to eligible participants under the plan. The plan provides for the grant of awards for up to 284,778 shares of the Company’s common stock. At ~~June 30,~~December 31, 2016, 284,778 options had been granted under this plan to eligible participants.

In February 2008, the Company’s stockholders approved the Company’s 2008 Equity Incentive Plan. The aggregate number of shares of common stock reserved and available for issuance under the 2008 Equity Incentive Plan is 597,605 shares. Under this Plan, the Compensation Committee may grant stock options and stock appreciation rights that, upon exercise, result in the issuance of 426,860 shares of the Company’s common stock. The Committee may also grant shares of restricted stock and restricted stock units for an aggregate of 170,745 shares of Company common stock under this plan. As of ~~June 30,~~December 31, 2016, ~~41,591~~46,591 restricted shares under this plan were granted. As of ~~June 30,~~December 31, 2016, 150,000 options had been granted to eligible participants.

Restricted shares granted to date under these plans were awarded at no cost to the employee and vest pro rata over a five-year period from the grant date. Options granted to date under these plans vest pro rata over a five-year period from the grant date. Unexercised, nonqualified stock options expire within 15 years of the grant date and unexercised incentive stock options expire within 10 years of the grant date.

Compensation expense related to restricted stock awards from both the 2004 Recognition and Retention Plan and the 2008 Equity Incentive Plan was ~~$(20)~~$16 and ~~$33~~$27 for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2016 ~~respectively. Compensation expense related to restricted stock awards from both the 2004 Recognition~~ and ~~Retention Plan and the 2008 Equity Incentive Plan was $26 and $70 for the three and nine months ended June 30,~~December 31, 2015, respectively.

Restricted Common Stock Award
	June 30, 2016				September 30, 2015				December 31, 2016			September 30, 2016
	Number of Shares		Weighted Average Grant Price		Number of Shares		Weighted Average Grant Price		Number of Shares	Weighted Average Grant Price		Number of Shares		Weighted Average Grant Price
Restricted Shares
Unvested and outstanding at beginning of fiscal year	46,857		$	7.59	41,014		$	6.51	23,159	$	9.59	46,857		$	7.59
Granted	9,091		11.00		17,500		9.20		2,500	11.04		11,591		10.98
Vested	(12,627	)	7.23		(11,657	)	6.18		—	—		(13,127	)	7.17
Forfeited	(22,162	)	7.54		—		—		—	—		(22,162	)	7.54
Unvested and outstanding fiscal to date	21,159		$	9.33	46,857		$	7.59	25,659	$	9.73	23,159		$	9.59

The Company accounts for stock-based employee compensation related to the Company’s 2004 Stock Option and Incentive Plan and the 2008 Equity Incentive Plan using the fair-value-based method. Accordingly, management records compensation expense based on the value of the award as measured on the grant date and then the Company recognizes that cost over the vesting period for the award. The compensation cost recognized for stock-based employee compensation related to both plans for the three ~~and~~ ~~nine~~month periods ended ~~June 30,~~December 31, 2016 ~~was $(7)~~ and ~~$25, respectively. The compensation cost recognized for stock-based employee compensation related to both plans for the three and nine month periods ended June 30,~~December 31, 2015 was $8 and $16, ~~and $44,~~ respectively.

Common Stock Option Awards	Common Stock Option Awards								Common Stock Option Awards

		Option Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value			Option Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
2017
Outstanding at September 30, 2016										140,706		$	8.67
Granted										—		—
Exercised										—
Forfeited or expired										—
Outstanding at December 31, 2016										140,706		$	8.67	6.97
Exercisable at December 31, 2016										49,520		$	7.27	3.84	$	256
Fully vested and expected to vest										140,706		$	8.67	6.97	$	530
2016
Outstanding at September 30, 2015		171,737		$	7.46					171,737		$	7.46
Granted		55,000		10.00						55,000		10.00
Exercised		(25,915	)							(43,515	)
Forfeited or expired		(42,516	)							(42,516	)
Outstanding at June 30, 2016		158,306		$	8.57	6.94
Exercisable at June 30, 2016		65,120		$	7.46	3.80	$	189
Outstanding at September 30, 2016										140,706		$	8.67	7.22
Exercisable at September 30, 2016										49,520		$	7.27	4.09	$	194
Fully vested and expected to vest		158,306		$	8.57	6.94	$	297		140,706		$	8.67	7.22	$	354
2015
Outstanding at September 30, 2014		179,192		$	6.52
Granted		50,000		9.20
Exercised		(51,955	)
Forfeited or expired		(5,500	)
Outstanding at September 30, 2015		171,737		$	7.46	7.58
Exercisable at September 30, 2015		63,764		$	6.79	5.33
Fully vested and expected to vest		171,737		$	7.46	7.58

Information related to the 2004 Stock Option and Incentive Plan and 2008 Equity Incentive Plan during each year follows:

2016 2015
Intrinsic value of options exercised $ 86
$ 180
Cash received from options exercised $ 153
$ 299
Tax benefit realized from options exercised $ —
$ 9



	2017		2016
Intrinsic value of options exercised	$	—	$	131
Cash received from options exercised	$	—	$	289
Tax benefit realized from options exercised	$	—	$	9

Set forth below is a table showing relevant assumptions used in calculating stock option expense related to the Company’s 2004 Stock Option and Incentive Plan and 2008 Equity Incentive Plan:


	2016		2015		2017		2016
Dividend yield	1.02	%	0.88	%	—	%	1.02	%
Risk-free interest rate	1.7	%	2.1	%	—	%	1.7	%
Weighted average expected life (years)	10		10		NA		10
Expected volatility	5	%	2	%	—	%	5	%

NOTE 98 – OTHER COMPREHENSIVE INCOME (LOSS)

The following table shows the tax effects allocated to each component of other comprehensive income for the ~~nine~~three months ended ~~June 30,~~December 31, 2016: and 2015:

Before-Tax
Amount

Tax
Expense

Net-of-Tax
Amount
Unrealized gains (losses) on securities:
Net unrealized gains arising during the period $ 1,677
(671 ) $ 1,006
Less: reclassification adjustment for gains included in net income 47
(19 ) 28
Defined benefit plans:

Amortization of unrecognized prior service costs and net gains (58 ) 23
(35 )
Other comprehensive income $ 1,666
$ (667 ) $ 999

~~The following table shows the tax effects allocated to each component of other comprehensive income for the nine months ended June 30, 2015:~~

Before-Tax
Amount

Tax
Expense

Net-of-Tax
Amount
Unrealized gains (losses) on securities:
Net unrealized gains arising during the period $ 45
(18 ) $ 27
Less: reclassification adjustment for gains included in net income 60
(24 ) 36
Defined benefit plans:
Amortization of unrecognized prior service costs and net gains 1
—
1
Other comprehensive income $ 106
$ (42 ) $ 64



	2016									2015
	Before-Tax Amount			Tax Expense			Net-of-Tax Amount			Before-Tax Amount			Tax Expense		Net-of-Tax Amount
Unrealized gains (losses) on securities:
Net unrealized losses arising during the period	$	(2,828	)	$	1,145		$	(1,683	)	$	(316	)	$	126	$	(190	)
Less: reclassification adjustment for gains included in net income	29			(12		)	17			—			—		—
Other comprehensive loss	$	(2,799	)	$	1,133		$	(1,666	)	$	(316	)	$	126	$	(190	)

The changes in the accumulated balances for each component of other comprehensive income (loss) for the twelve months ended September 30, 2016 and the ~~nine~~three months ended ~~June 30,~~December 31, 2016 were as follows:


	Unrealized Gains (Losses) on Securities			Defined Benefit Plans			Other Accumulated Comprehensive Income (Loss)			Unrealized Gains (Losses) on Securities			Defined Benefit Plans			Other Accumulated Comprehensive Income (Loss)
Balance, October 1, 2015	$	(249	)	$	35		$	(214	)	$	(249	)	$	35		$	(214	)
Current year-to-date other comprehensive income, net of tax	1,666			(667		)	999			863			(35		)	828
Ending balance, June 30, 2016	$	1,417		$	(632	)	$	785
Ending balance, September 30, 2016										$	614		$	—		$	614
Current year-to-date other comprehensive loss, net of tax										(1,666		)	—			(1,666		)
Ending balance, December 31, 2016										$	(1,052	)	$	—		$	(1,052	)

Reclassifications out of accumulated other comprehensive income (loss) for the three months ended December 31, 2016 were as follows:



Details about Accumulated Other Comprehensive Income Components	Amounts Reclassified from Accumulated Other Comprehensive Income			(1)	Affected Line Item on the Statement of Operations
Unrealized gains and losses
Sale of securities	$	29			Net gain on sale of available for sale securities
Tax Effect	(12		)		Provision for income taxes
Total reclassifications for the period	$	17			Net income attributable to common shareholders

(1) Amounts in parentheses indicate decreases to profit/loss.

Reclassifications out of accumulated other comprehensive income for the three months ended December 31, 2015 were as follows:



Details about Accumulated Other Comprehensive Income Components	Amounts Reclassified from Accumulated Other Comprehensive Income		(1)	Affected Line Item on the Statement of Operations
Unrealized gains and losses
Sale of securities	$	—		Net gain on sale of available for sale securities
Tax Effect	—			Provision for income taxes
Total reclassifications for the period	$	—		Net income attributable to common shareholders

(1) Amounts in parentheses indicate decreases to profit/loss.

NOTE 109 – TERMINATION OF CERTAIN RETIREMENT PLANS

The Company maintained a Supplemental Benefit Plan For Key Employees ("SERP") which was an unfunded, unsecured, non-contributory defined benefit plan, providing retirement benefits for certain former key employees previously designated by the Company’s Board of Directors. Benefits under the SERP generally were based on such former employees’ years of service and compensation during the years preceding their retirement. In May 2009, any additional accrual of benefits under the SERP was suspended.

The Company also maintained a Directors’ Retirement Plan ("DRP"), which was an unfunded, unsecured, non-contributory defined benefit plan, providing for supplemental pension benefits for its directors following their termination of service as a director of the Company. Benefits were based on a formula that included each participant’s past and future earnings and years of service with Citizens. Moreover, the benefit amounts owed by the Company under the DRP were determined by individual director agreements entered into by the Company with such participants. The remaining DRP liability related to current and former Directors of the Company.

The Company's Board of Directors voted to terminate each of the SERP and the DRP at its regularly scheduled Board meeting on November 19, 2015, with such termination being effective as of the same date. In connection with the termination of each plan, the Board of Directors, in accordance with applicable law and each applicable participant’s plan participation agreement, negotiated lump sum payments to the participants in satisfaction of the Company’s total liability to each participant under the SERP and DRP. In accordance with the final settlement of the Company’s obligations under such plans, the Company will make two payments (each for 50% of the total liability owed) to each plan participant. The first payment ~~will occur~~occurred in December 2016 and the second and final payment ~~will occur~~occurred in January 2017.

In connection with the settlement of all obligations owed by the Company to the participants in the SERP and the DRP, the Company retained an independent consultant during the three months ended March 31, 2016 to perform an actuarial calculation of the final amount of the accumulated benefit owed by the Company to each plan participant. In making this calculation, the consultant made certain assumptions regarding the applicable discount rate to be used and regarding certain other relevant factors to determine the amount of the benefit obligation due each participant, in each case taking into account the terms of each participant’s negotiated plan benefit agreement and the terms of each plan. Differences between the amount of the projected accrued benefit obligation previously recorded by the Company in its consolidated financial statements in connection with these plans and the actual amount of the benefit obligation to be paid to the participants, based upon the calculations of the independent consultant, is recorded in the aggregate as a gain of $41 during the ~~nine~~twelve months ended ~~June~~September 30, 2016 on the ~~accompanying~~ Consolidated Statements of Operations line item "Salaries and related benefits" as a reduction to the expense. ~~Moreover, as~~As of ~~June 30,~~December 31, 2016, the Company recorded a liability on the accompanying Consolidated Balance Sheet of ~~$1,065~~$513 for the aggregate amount of the benefit obligation due plan participants ~~currently receiving monthly and quarterly payments and~~for the final lump sum payment amounts due in ~~December 2016 and~~ January 2017.

The components of the SERP and Directors' Retirement plans' cost at ~~June~~December 31, 2016 and September 30, 2016 are summarized below.


	2016			December 31, 2016			September 30, 2016
Beginning accrued benefit cost	$	1,120		$	1,046		$	1,120
Service cost	—			—			—
Interest cost	44			—			44
Amortization of prior service costs	1			—			1
Net plan termination Credit	(41		)	—			(41		)
Net periodic benefit cost	4			—			4
Benefits paid	(59		)	(533		)	(78		)
Ending accrued benefit cost	$	1,065		$	513		$	1,046

Amounts recognized in consolidated balance sheets:


	June 30, 2016		December 31, 2016
Pension obligation	$	1,065	$	513

Prior service cost	—		—
Net loss (gain)	—		—
Total accumulated other comprehensive income, before tax	—		$	—


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “could,” “expect,” “intend,” “may,” “planned,” “potential,” “should,” “will,” “would,” or the negative of those terms or other words of similar meaning. Such forward-looking statements in this report are inherently subject to many uncertainties arising in the Company’s operations and business environment. ~~These~~

Factors that could affect actual results or outcomes include the matters described under the caption “Risk Factors” in Item 1A of our Form 10-K for the fiscal year ended September 30, 2016, which was filed on December 29, 2016, and the following:

risks and uncertainties ~~include general~~related to the restatement of our prior consolidated financial statements;

risks related to the remediation of the identified material weakness in our internal control over financial reporting;

the possibility that our internal controls and procedures could fail or be circumvented;

conditions in the financial markets and economic conditions generally;

the possibility of a deterioration in ~~particular, relating to consumer demand for~~ the ~~Bank’s products and services;~~ residential real estate markets;

interest rate risk;

lending risk;

the ~~Bank’s ability to maintain current deposit and~~sufficiency of loan ~~levels at current interest rates; competitive and technological developments; deteriorating credit quality, including~~ allowances;

changes in the interest rate environment reducing interest margins; prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; the Bank’s ability to maintain required capital levels and adequate sourcesfair value or ratings downgrades of ~~funding and liquidity; maintaining capital requirements may limit the Bank’s operations and potential growth; changes and trends in capital markets;~~ our securities;

competitive pressures among depository and other financial institutions; ~~effects~~

our ability to realize the benefits of ~~critical accounting estimates~~net deferred tax assets;

our ability to maintain or increase our market share;

acts of terrorism and ~~judgments; changes in accounting policies~~political or ~~procedures as may be required~~military actions by the ~~Financial Accounting Standards Board (FASB)~~United States or other regulatory agencies overseeing the Bank; the Bank’s ability to implement its cost-savings and revenue enhancement initiatives including managing costs associated with its branch consolidation and new market branch growth initiatives; governments;

legislative or regulatory changes or actions, or significant litigation, adversely affecting the ~~Bank~~Bank;

increases in FDIC insurance premiums or special assessments by the ~~Company; fluctuation of the Company’s stock price; the Bank's~~FDIC;

disintermediation risk;

our inability to obtain needed liquidity;

our ability to raise capital needed to fund growth or meet regulatory requirements;

our ability to attract and retain key personnel; ~~the Bank's~~

our ability to ~~secure confidential information through~~ keep pace with technological change;

cybersecurity risks;

risks posed by acquisitions;

changes in accounting principles, policies or guidelines and their impact on financial performance;

restrictions on our ability to pay dividends; and

the ~~use~~potential volatility of computer systems and telecommunications networks; and the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity. Shareholders,our stock price.

Stockholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. ~~Such uncertainties~~The forward-looking statements made herein are only made as of the date of this filing and ~~other risks that may affect~~ the ~~Company’s performance are discussed further in Part I, Item 1A, “Risk Factors,” in the Company’s Form 10-K, for the year ended~~ ~~September 30, 2015~~ ~~filed with the Securities and Exchange Commission on December 7, 2015. The~~ Company undertakes no obligation to ~~make any revisions to the~~publicly update such forward-looking statements ~~contained in this report or to update them~~ to reflect subsequent events or circumstances occurring after the date of this report.

GENERAL

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of ~~June 30,~~December 31, 2016, and our consolidated results of operations for the ~~nine~~three months ended ~~June 30,~~December 31, 2016, compared to the same period in the prior fiscal year for the ~~nine~~three months ended ~~June 30,~~December 31, 2015. This discussion should be read in conjunction with the interim consolidated financial statements and the condensed notes thereto included with this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes related thereto included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on December ~~7, 2015.~~29, 2016. Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

~~ACQUISITION~~

~~On May 16,~~

RESTATEMENT SUMMARY

Our Annual Report on Form 10-K of the Company for the fiscal year ended September 30, 2016, ~~we successfully completed~~which was filed on December 29, 2016, included restatement of our previously filed consolidated financial statements and the ~~acquisition~~related consolidated statements of ~~CBN.~~operations, shareholders’ equity and cash flows for the fiscal years ended September 30, 2014 and 2015 as well as revised quarterly results of operations for the fiscal years ended September 30, 2015 and 2016. The ~~acquisition expands our branch network~~prior period errors were discovered in ~~northern Wisconsin. The acquisition~~connection with the annual audit of consolidated financial statements for the fiscal year ended September 30, 2016. Management determined that certain professional and other expense accrual items were overstated during the fiscal years ended September 30, 2014 and 2015 resulting in understatement of the Company’s net income for the quarterly and annual periods ended September 30, 2014 and 2015. During the fiscal year ended September 30, 2016, management reversed these overstated accrued expenses which resulted in an overstatement of quarterly and annual net income for the year ended September 30, 2016. The cumulative effect of the net over-accruals of certain expenses for the fiscal years ended September 30, 2014 and 2015 was that net income was understated by $726 and $192 respectively. The effect of these restatements on the Company’s 2016 and 2015 quarterly consolidated statements of operations, as reported on Forms 10-Q, are as follows: Total non-interest expense decreased by $60 for the quarter ended September 30, 2015; and decreased by $85 for each of the quarters ended June 30, 2015; March 31, 2015 and December 31, 2014. Net income increased by $36 for the quarter ended September 30, 2015; and increased by $52 for each of the quarters ended June 30, 2015; March 31, 2015 and December 31, 2014. Total non-interest expense increased by $151, $43, and $21 for the quarters ended June 30, 2016; March 31, 2016 and December 31, 2015, respectively. Net income decreased by $92, $26, and $13 for the quarters ended June 30, 2016; March 31, 2016 and December 31, 2015, respectively. The effects of the restatements on the Company’s balance sheets and statements of cash flows for the Restated Periods were not material. For further discussion of the effects of the 2016 restatements, please refer to the following ~~increases~~portions of this Quarterly Report on Form 10-Q: Part 1, Item 1. Financial Statements, Note 1 to ~~our balance sheet~~Consolidated Financial Statements, Nature of Business and Summary of Significant Accounting Policies, and Item 4. Controls and Procedures as ofwell as the acquisition date: approximately $112,000 in loans, $151,000 in deposits, $3,568 of goodwill, $11,000 of debt, and net assets of $12,510. The acquisition also reduced cash and other liquid assets by approximately $6,447, which funded a portion of the acquisition, as discussed further in Note 2-Acquisition. The discussionfollowing portions of our ~~results below reflect the acquired net assets~~Annual Report on Form 10-K: Explanatory Note Regarding Restatement; Part II, Item 7 Management’s Discussion and Analysis of ~~CBN, the financing transactions to fund the purchase price,~~Financial Condition and ~~goodwill arising from accounting for the acquisition as~~Results of ~~June 30, 2016.~~Operations, Item 8 Financial Statements and Supplementary Data, Note 2, Restatement of Previously Issued Financial Statements, and Item 9A Controls and Procedures.

3839

PERFORMANCE SUMMARY

The following table sets forth our results of operations and related summary information for the ~~three and~~ ~~nine~~three month periods ended ~~June 30,~~December 31, 2016 and 2015, respectively:


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended December 31,
	2016			2015			2016			2015			2016			2015 (As Restated)
Net income as reported	$	967		$	612		$	2,528		$	1,923		$	940		$	847
EPS - basic, as reported	$	0.18		$	0.12		$	0.48		$	0.37		$	0.18		$	0.16
EPS - diluted, as reported	$	0.18		$	0.12		$	0.48		$	0.37		$	0.18		$	0.16
Cash dividends paid	$	—		$	—		$	0.12		$	0.08		$	—		$	—
Return on average assets (annualized)	0.59		%	0.43		%	0.52		%	0.45		%	0.54		%	0.58		%
Return on average equity (annualized)	6.17		%	4.15		%	5.43		%	4.41		%	5.81		%	5.52		%
Efficiency ratio, as reported (1)	75.15		%	79.16		%	75.11		%	76.61		%	79.52		%	75.01		%


(1)	The efficiency ratio is calculated as non-interest expense ~~minus branch closure costs~~ divided by the sum of net interest income plus non-interest ~~income, excluding net impairment losses recognized in net~~ income. A lower ratio indicates greater efficiency.

Key factors behind these results were:

Net interest income was ~~$5,179 and $14,359~~$5,557 for the ~~three and~~ ~~nine~~three month ~~periods~~period ended ~~June 30,~~December 31, 2016, an increase of ~~$653~~$1,004 or ~~14.43%~~22.05% from the prior comparable three month ~~period and an increase of $407 or 2.92% from the prior year~~ period. The ~~three and nine month~~ increase was primarily due to the increase in loan balances due to the CBN acquisition on May ~~17,~~16, 2016.

The net interest margin of ~~3.27%~~3.36% for the three months ended ~~June 30,~~December 31, 2016 represents a 414 bp ~~decrease~~increase from a net interest margin of ~~3.31%~~3.22% for the three months ended ~~June 30,~~December 31, 2015~~. The net interest margin of 3.24% for the nine months ended June 30, 2016 represents a 14 bp decrease from a net interest margin of 3.38% for the nine months ended June 30, 2015.~~

due to higher yields on earning assets.

Total loans were $~~584,046~~548,904 at ~~June 30,~~December 31, 2016, ~~an increase~~a decrease of $~~133,536~~25,535, or ~~29.64%~~4.45%, from their balances at September 30, ~~2015~~2016, due primarily to ~~$112,327 of additional~~our increased focus on secondary market lending for one to four family residential loans ~~resulting from~~and exiting the ~~acquisition of CBN, along with continued commercial loan growth and the Central Bank Rice Lake and Barron, Wisconsin selective loans purchase.~~indirect lending business. Total deposits were $~~585,224~~535,112 at ~~June 30,~~December 31, 2016, ~~an increase~~a decrease of $~~128,926~~22,565, or ~~28.25%~~4.05%, from their balances at September 30, ~~2015~~2016, mainly due to ~~deposits received from~~deposit run-off related to the CBN acquisition ~~of $151,020~~ and the ~~Central Bank Rice Lake~~announced closure of the four Eastern Wisconsin branches. Despite the decline in total deposits, demand deposits, both interest bearing and ~~Barron, Wisconsin deposit purchase , offset by decreases in~~non-interest bearing, increased from their balances ~~of accounts in closed branches of $12,433.~~at September 30, 2016.

Net loan charge-offs ~~decreased~~slightly increased from ~~$479~~$130 for the ~~nine~~three months ended ~~June 30,~~December 31, 2015 to $~~335~~151 for the ~~nine~~three months ended ~~June 30,~~December 31, 2016~~, as a result of overall credit quality improvement within our loan portfolio.~~. Continued lower levels of net loan charge-offs in recent periods led to a decreased provision for loan losses of $750 for the ~~nine~~three month period ended ~~June 30,~~December 31, 2016, compared to ~~$535~~$75 for the ~~nine~~three months ended ~~June 30,~~December 31, 2015. Annualized net loan charge-offs as a percentage of average loans were ~~0.09%~~0.11% for the ~~nine~~three months ended ~~June 30,~~December 31, 2016, compared to ~~0.14%~~0.12% for the ~~nine~~three months ended ~~June 30,~~December 31, 2015.

Non-interest income increased from ~~$931~~$950 for the three months ended ~~June 30,~~December 31, 2015 to ~~$1,013~~$1,313 for the three months ended ~~June 30, 2016~~, because of an increase in interchange income received due to additional card usage. Non-interest income decreased from $2,889 for the nine months ended June 30, 2015 to $2,773 for the nine months ended June 30,December 31, 2016, mainly due to ~~a decrease~~gains on payoffs from purchased credit impaired loans in ~~overdraft~~the amount of $206 and an increase in secondary market fee ~~income. As a result of our branch rationalization, our deposit mix is changing which has led~~income generated from customer mortgage activity due to ~~a decrease in overdraft fee income.~~

advantages over the ARM loan portfolio mortgage offerings.

Non-interest expense increased ~~$295~~$1,348 for the three months ended ~~June 30,~~December 31, 2016 from ~~$4,358~~$4,115 to ~~$4,653~~$5,463, compared to the three ~~months ended June 30, 2015. Non-interest expense decreased $157 for the nine months ended June 30, 2016 from $13,271 to $13,114, compared to the nine~~ month period ended ~~June 30,~~December 31, 2015. During the current three month period, salaries and related benefits ~~costs~~cost increased ~~$183,~~$456, mainly due to the addition of new employees related to the CBN acquisition. ~~During the current nine month period, similar personnel cost increases were offset by decreases in occupancy~~Occupancy expenses increased $499, primarily due to ~~efficiencies and cost savings realized over recent periods through management initiatives including~~rent termination costs related to the four branch closures in Eastern Wisconsin. Professional fees and ~~technology improvements. Occupancy costs consist primarily of office rental~~other non-interest expenses increased due to legal, audit and ~~depreciation~~branch closure expenses. ~~Other non-interest expense reductions, including professional services, reflected reduced expenses as part of our branch rationalization plan.~~

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses and their related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that our management believes to be relevant at the time our consolidated financial statements are prepared. Some of these estimates are more critical than others. In addition to the policies included in Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to the Consolidated

Financial Statements included as an exhibit to our Form 10-K annual report for the fiscal year ending September 30, ~~2015,~~2016, our critical accounting estimates are as follows:

Allowance for Loan Losses.

We maintain an allowance for loan losses to absorb probable incurred losses in our originated loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated probable and inherent losses in our originated loan portfolio. In evaluating the level of the allowance for loan loss, we consider the types of loans and the amount of loans in our originated loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying loan collateral and prevailing economic conditions. We follow all applicable regulatory guidance, including the “Interagency Policy Statement on the Allowance for Loan and Lease Losses,” issued by the Federal Financial Institutions Examination Council ("FFIEC"). We believe that the Bank’s Allowance for Loan Losses Policy conforms to all applicable regulatory requirements. However, based on periodic examinations by regulators, the amount of the allowance for loan losses recorded during a particular period may be adjusted.

Our determination of the allowance for loan losses is based on (1) specific allowances for specifically identified and evaluated impaired loans and their corresponding estimated loss based on likelihood of default, payment history, and net realizable value of underlying collateral; and (2) a general allowance on loans not specifically identified in (1) above, based on historical loss ratios which are adjusted for qualitative and general economic factors. We continue to refine our allowance for loan losses methodology, with an increased emphasis on historical performance adjusted for applicable economic and qualitative factors.

Assessing the allowance for loan losses is inherently subjective as it requires making material estimates, including estimating the amount and timing of future cash flows expected to be received on impaired loans, any of which estimates may be susceptible to significant change. In our opinion, the allowance for loan losses, when taken as a whole, reflects estimated probable and inherent loan losses in our loan portfolio.

Goodwill.

Goodwill resulting from the acquisition by merger of CBN was determined as the excess of the fair value of the consideration transferred, over the fair value of the net assets acquired, less liabilities assumed in the acquisition by merger, as of the acquisition date. Goodwill resulting from the selective purchase of loans and deposits from Central Bank in February 2016 was determined as the excess of the Premium Deposit less the Core Deposit Intangible as of the acquisition date. Goodwill is determined to have an indefinite useful life, and is not amortized. Goodwill is tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed.

Fair Value Measurements and Valuation Methodologies.

We apply various valuation methodologies to assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued. Quoted market prices are referred to when estimating fair values for certain assets, such as most investment securities. However, for those items for which an observable liquid market does not exist, management utilizes significant estimates and assumptions to value such items. Examples of these items include loans, deposits, borrowings, goodwill, core deposit intangible assets, other assets and liabilities obtained or assumed in business combinations, and certain other financial instruments. These valuations require the use of various assumptions, including, among others, discount rates, rates of return on assets, repayment rates, cash flows, default rates, and liquidation values. The use of different assumptions could produce significantly different results, which could have material positive or negative effects on the Company’s results of operations, financial condition or disclosures of fair value information.

In addition to valuation, the Company must assess whether there are any declines in value below the carrying value of assets that should be considered other than temporary or otherwise require an adjustment in carrying value and recognition of a loss in the consolidated statement of income. Examples include but are not limited to; loans, investment securities, goodwill, core deposit intangible assets and deferred tax assets, among others. Specific assumptions, estimates and judgments utilized by management are discussed in detail herein in management’s discussion and analysis of financial condition and results of operations and in notes 1, 2, 3, 4, 5, and 7 of Condensed Notes to Consolidated Financial Statements.

Income Taxes.

The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current

assessment, the impact of which could be material to our consolidated results of our operations and reported earnings. We believe that the tax assets and liabilities are adequate and properly recorded in the accompanying consolidated financial statements. As of ~~June 30,~~December 31, 2016, management does not believe a valuation allowance related to the realizability of its deferred tax assets is necessary.

STATEMENT OF OPERATIONS ANALYSIS

Net Interest Income. Net interest income represents the difference between the dollar amount of interest earned on interest-bearing assets and the dollar amount of interest paid on interest-bearing liabilities. The interest income and expense of financial institutions (including those of the Bank) are significantly affected by general economic conditions, competition, policies of regulatory authorities and other factors.

Interest rate spread and net interest margin are used to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest earning assets and the rate paid for interest-bearing liabilities that fund those assets. Net interest margin is expressed as the percentage of net interest income to average interest earning assets. Net interest margin currently exceeds interest rate spread because non-interest bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets. The narrative below discusses net interest income, interest rate spread, and net interest margin for the ~~nine~~three month periods ended ~~June 30,~~December 31, 2016 and 2015, respectively.

Tax equivalent net interest income was ~~$5,248~~$5,628 and ~~$14,554~~$4,613 for the ~~three and~~ ~~nine~~three months ended ~~June 30,~~December 31, 2016~~, compared to $4,567~~ and ~~$14,032 for the three and~~ ~~nine~~ ~~months ended~~ ~~June 30,~~December 31, 2015,. respectively. The net interest margin for the ~~three and~~ ~~nine~~three month ~~periods~~period ended ~~June 30,~~December 31, 2016 was ~~3.27% and 3.24%~~3.36% compared to ~~3.31% and 3.38%~~3.22% for the ~~three and~~ ~~nine~~three month ~~periods~~period ended ~~June 30,~~December 31, 2015.

As shown in the rate/volume analysis in the following pages, volume changes resulted in an increase of ~~$714 and $857~~$1,055 in net interest income for the ~~three and~~ ~~nine~~three month ~~periods~~period ended ~~June 30,~~December 31, 2016 compared to the comparable prior year period. The increase and changes in the composition of interest earning assets resulted in an increase of ~~$929 and $1,133~~$1,250 for the ~~three and~~ ~~nine~~three month ~~periods~~period ended ~~June 30,~~December 31, 2016, compared to the same period in the prior year. Rate changes on interest earning assets ~~decreased~~increased net interest income by ~~$48 and $401~~$36 for the ~~three and~~ ~~nine~~three month periods ended ~~June 30,~~December 31, 2016. Rate changes on interest-bearing liabilities ~~decreased~~increased interest expense by ~~$15 and $66~~$76 over the same period in the prior year, resulting in a net decrease of ~~$33 and $335~~$40 in net interest income as a result of changes in interest rates due to competitive pricing during the ~~three and~~ ~~nine~~three month ~~periods~~period ended ~~June 30,~~December 31, 2016. Rate ~~decreases~~increases on ~~loans~~investment securities are reflective of ~~the overall lower market interest rate environment versus historic levels.~~longer term investments at higher rates.

Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following Net Interest Income Analysis table presents interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and rates on a tax equivalent basis. Shown below is the weighted average yield on interest earning assets, rates paid on interest-bearing liabilities and the resultant spread at or during the ~~nine~~three month period ended ~~June 30,~~December 31, 2016, and for the comparable prior year ~~nine~~three month ~~periods.~~period. Non-accruing loans have been included in the table as loans carrying a zero yield.

Average interest earning assets were ~~$646,388~~$664,319 and ~~$600,434~~$568,003 for the ~~three and~~ ~~nine~~three month ~~periods~~period ended ~~June 30,~~December 31, 2016~~, respectively, compared to $553,258~~ and ~~$555,225 for the comparable prior year periods.~~December 31, 2015, respectively. Interest income on interest earning assets was ~~$6,543~~$7,020 and ~~$18,085~~$5,734 for the ~~three and~~ ~~nine~~three month periods ended ~~June 30,~~December 31, 2016~~, respectively, compared to $5,662~~ and ~~$17,353 for the same periods in the prior year.~~December 31, 2015, respectively. Interest income is comprised primarily of interest income on loans and interest income on investment securities adjusted for the tax benefit of tax-exempt securities. Interest income on loans was ~~$6,072~~$6,530 and ~~$16,623~~$5,250 for the ~~three and~~ ~~nine~~three month periods ended ~~June 30,~~December 31, 2016, and December 31, 2015, respectively, ~~compared to $5,304 and $16,275 for the comparable prior year periods.~~ The increase in loan interest income in the current year three ~~and nine~~ month periods was primarily due to an ~~increased level of commercial~~increase in loans indue to the ~~current year periods over the comparable periods in the prior year.~~CBN acquisition. Interest income on investment securities was ~~$397~~$430 and ~~$1,250~~$424 for the ~~three and~~ ~~nine~~three month periods ended ~~June 30,~~December 31, 2016~~, compared to $308~~ and ~~$938 for the similar prior year periods.~~December 31, 2015, respectively. The slight increase is due to an increase in ~~our investment portfolio from funds received from the Central Bank selective loans and deposits purchase and the CBN acquisition.~~rates on longer term investments.

Average interest-bearing liabilities were ~~$566,575~~$576,276 and ~~$525,139~~$496,547 for the ~~three and~~ ~~nine~~three month periods ended ~~June 30,~~December 31, 2016~~, respectively, compared to $483,181~~ and ~~$486,620 for the similar prior year periods.~~December 31, 2015, respectively. Interest expense on interest-bearing liabilities was ~~$1,295~~$1,392 and ~~$3,531~~$1,121 for the ~~three and~~ ~~nine~~three month periods ended ~~June 30,~~December 31, 2016~~, respectively, compared to $1,095~~ and ~~$3,321 for the same periods in the prior year.~~December 31, 2015, respectively. Interest expense increased during the current ~~three and~~ ~~nine~~three month periods compared to the comparable prior year periods, due to increases in deposit balances from the recent acquisition.

For the ~~three and~~ ~~nine~~three months ended ~~June 30,~~December 31, 2016, interest expense on interest-bearing deposits increased ~~$150 and $175, respectively,~~$132, from volume and mix changes and ~~decreased $16 and $32~~increased $31 from the impact of the rate environment, resulting in an aggregate increase of ~~$134 and $143~~$163 in interest expense on interest-bearing deposits ~~during such periods.~~relative to December 31, 2015. Interest expense on FHLB advances and other borrowings increased ~~$65~~ ~~and $101~~$63 from volume and mix changes and increased $1 ~~and decreased $34~~$45 from the impact of the rate environment during the ~~three and~~ ~~nine~~three month ~~periods~~period ended ~~June 30,~~December 31, 2016 for an aggregate increase ~~of $66 and $67~~$108 for the ~~three and~~ ~~nine~~three month ~~periods.~~period.

4142

NET INTEREST INCOME ANALYSIS ON A ~~TAX-EQUIVALENT~~TAX EQUIVALENT BASIS

(Dollar amounts in thousands)

Three months ended ~~June 30,~~December 31, 2016 compared to the three months ended ~~June 30, 2015~~:December 31, 2015:


	Three months ended June 30, 2016						Three months ended June 30, 2015						Three months ended December 31, 2016						Three months ended December 31, 2015
	Average Balance		Interest Income/ Expense		Average Yield/ Rate		Average Balance		Interest Income/ Expense		Average Yield/ Rate		Average Balance		Interest Income/ Expense		Average Yield/ Rate		Average Balance		Interest Income/ Expense		Average Yield/ Rate
Average interest earning assets:
Cash and cash equivalents	$	21,118	$	18	0.34	%	$	24,006	$	17	0.28	%	$	10,238	$	12	0.47	%	$	19,575	$	15	0.30	%
Loans	525,780		6,072		4.64	%	454,255		5,304		4.68	%	561,519		6,530		4.61	%	451,809		5,250		4.61	%
Interest-bearing deposits	2,557		10		1.57	%	1,495		7		1.88	%	745		3		1.60	%	3,055		17		2.21	%
Investment securities (1)	92,102		397		1.73	%	68,713		308		1.80	%	86,617		430		1.97	%	88,938		424		1.89	%
Non-marketable equity securities, at cost	4,831		46		3.83	%	4,789		26		2.18	%	5,200		45		3.43	%	4,626		28		2.40	%
Total interest earning assets	$	646,388	$	6,543	4.07	%	$	553,258	$	5,662	4.10	%	$	664,319	$	7,020	4.19	%	$	568,003	$	5,734	4.01	%
Average interest-bearing liabilities:
Savings accounts	$	35,825	$	11	0.12	%	$	28,113	$	8	0.11	%	$	43,743	$	17	0.15	%	$	27,019	$	8	0.12	%
Demand deposits	42,898		65		0.61	%	21,883		42		0.77	%	48,989		74		0.60	%	23,952		44		0.73	%
Money market	141,162		141		0.40	%	145,575		156		0.43	%	130,057		134		0.41	%	144,284		154		0.42	%
CD’s	251,534		787		1.26	%	218,287		675		1.24	%	245,646		814		1.31	%	219,873		683		1.23	%
IRA’s	27,332		77		1.13	%	22,182		66		1.19	%	29,000		80		1.09	%	22,528		67		1.18	%
Total deposits	498,751		1,081		0.87	%	436,040		947		0.88	%	497,435		1,119		0.89	%	437,656		956		0.87	%
FHLB Advances and other borrowings	67,824		214		1.27	%	47,141		148		1.26	%
FHLB Advance and other borrowings													78,841		273		1.37	%	58,891		165		1.11	%
Total interest-bearing liabilities	$	566,575	$	1,295	0.92	%	$	483,181	$	1,095	0.91	%	$	576,276	$	1,392	0.96	%	$	496,547	$	1,121	0.90	%
Net interest income			$	5,248					$	4,567					$	5,628					$	4,613
Interest rate spread					3.15	%					3.19	%					3.23	%					3.11	%
Net interest margin					3.27	%					3.31	%					3.36	%					3.22	%
Average interest earning assets to average interest-bearing liabilities					1.14						1.15						1.15						1.14

(1) For the three months ended ~~June 30,~~ended December 31, 2016 and 2015, the average balances of the tax exempt investment securities, included in investment securities, were ~~$30,190~~$31,986 and ~~$17,248, respectively. The interest income on tax exempt securities is computed on a tax-equivalent basis using a tax rate of 34% for all periods presented.~~

~~Nine months ended June 30, 2016 compared to the nine months ended June 30, 2015:~~

Nine months ended June 30, 2016 Nine months ended June 30, 2015

Average
Balance

Interest
Income/
Expense

Average
Yield/
Rate

Average
Balance

Interest
Income/
Expense

Average
Yield/
Rate
Average interest earning assets:
Cash and cash equivalents $ 18,630
$ 51
0.37 % $ 19,765
$ 37
0.25 %
Loans 482,808
16,623
4.60 % 459,104
16,275
4.74 %
Interest-bearing deposits 2,868
43
2.00 % 1,195
18
2.01 %
Investment securities (1) 91,420
1,250
1.83 % 70,052
938
1.79 %
Non-marketable equity securities, at cost 4,708
118
3.35 % 5,109
85
2.22 %
Total interest earning assets $ 600,434
$ 18,085
4.02 % $ 555,225
$ 17,353
4.18 %
Average interest-bearing liabilities:
Savings accounts $ 30,755
$ 26
0.11 % $ 27,840
$ 22
0.11 %
Demand deposits 32,008
155
0.65 % 20,343
114
0.75 %
Money market 142,003
436
0.41 % 142,062
467
0.44 %
CD’s 232,558
2,159
1.24 % 222,416
2,045
1.23 %
IRA’s 24,584
212
1.15 % 22,268
197
1.18 %
Total deposits 461,908
2,988
0.86 % 434,929
2,845
0.87 %
FHLB Advance and other borrowings 63,231
543
1.15 % 51,691
476
1.23 %
Total interest-bearing liabilities $ 525,139
$ 3,531
0.90 % $ 486,620
$ 3,321
0.91 %
Net interest income $ 14,554
$ 14,032

Interest rate spread 3.12 % 3.27 %
Net interest margin 3.24 % 3.38 %
Average interest earning assets to average interest-bearing liabilities 1.14
1.14

~~(1) For the nine months ended ended June 30, 2016 and 2015, the average balances of the tax exempt investment securities, included in investment securities, were $28,433 and $12,494,~~$26,572, respectively. The interest income on tax exempt securities is computed on a tax-equivalent basis using a tax rate of 34% for all periods presented.

Rate/Volume Analysis. The following table presents the dollar amount of changes in interest income and interest expense for the components of interest earning assets and interest-bearing liabilities that are presented in the preceding table. For each category of interest earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume, which are changes in the average outstanding balances multiplied by the prior period rate (i.e. holding the initial rate constant); and (2) changes in rate, which are changes in average interest rates multiplied by the prior period volume (i.e. holding the initial balance constant). Changes due to both rate and volume which cannot be segregated have been allocated in proportion to the relationship of the dollar amounts of the change in each category.

RATE / VOLUME ANALYSIS

(Dollar amounts in thousands)

Three months ended ~~June 30,~~December 31, 2016 compared to the three months ended ~~June 30, 2015:~~

Increase (decrease) due to
Volume Rate Net
Interest income:
Cash and cash equivalents $ (2 ) $ 3
$ 1
Loans 826
(58 ) 768
Interest-bearing deposits 4
(1 ) 3
Investment securities 101
(12 ) 89
Non-marketable equity securities, at cost —
20
20
Total interest earning assets 929
(48 ) 881
Interest expense:
Savings accounts 2
1
3
Demand deposits 34
(11 ) 23
Money market accounts (5 ) (10 ) (15 )
CD’s 104
8
112
IRA’s 15
(4 ) 11
Total deposits 150
(16 ) 134
FHLB Advances 65
1
66
Total interest bearing liabilities 215
(15 ) 200
Net interest income $ 714
$ (33 ) $ 681

~~Nine months ended June 30, 2016 compared to the nine months ended June 30,~~December 31, 2015.

Increase (decrease) due to
Volume Rate Net
Interest income:
Cash and cash equivalents $ (2 ) $ 16
$ 14
Loans 825
(477 ) 348
Interest-bearing deposits 25
—
25
Investment securities 292
20
312
Non-marketable equity securities, at cost (7 ) 40
33
Total interest earning assets 1,133
(401 ) 732
Interest expense:
Savings accounts 2
2
4
Demand deposits 59
(18 ) 41
Money market accounts —
(31 ) (31 )
CD’s 94
20
114
IRA’s 20
(5 ) 15
Total deposits 175
(32 ) 143
FHLB Advance and other borrowings 101
(34 ) 67
Total interest bearing liabilities 276
(66 ) 210
Net interest income (loss) $ 857
$ (335 ) $ 522



	Increase (decrease) due to
	Volume			Rate			Net
Interest income:
Cash and cash equivalents	$	(9	)	$	6		$	(3	)
Loans	1,276			4			1,280
Interest-bearing deposits	(10		)	(4		)	(14		)
Investment securities	(11		)	17			6
Non-marketable equity securities, at cost	4			13			17
Total interest earning assets	1,250			36			1,286
Interest expense:
Savings accounts	6			3			9
Demand deposits	40			(10		)	30
Money market accounts	(15		)	(5		)	(20		)
CD’s	83			48			131
IRA’s	18			(5		)	13
Total deposits	132			31			163
FHLB Advance and other borrowings	63			45			108
Total interest bearing liabilities	195			76			271
Net interest income (loss)	$	1,055		$	(40	)	$	1,015

Provision for Loan Losses. We determine our provision for loan losses (“provision”, or “PLL”) based on our desire to provide an adequate allowance for loan losses (“ALL”) to reflect probable and inherent credit losses in our loan portfolio. Prior to the past 3 years, higher charge off levels and the negative influence of certain qualitative and general economic factors discussed above under “Critical Accounting Estimates—Allowance for Loan Losses”, made it necessary to increase our provision to ensure an adequate ALL. Within the last year, we have experienced lower levels of charge-offs and nonperforming loans. With both local and national unemployment rates improving slightly in recent quarters and improved asset quality due to our stricter underwriting standards, we anticipate our actual charge-off experience to remain stable throughout the remainder of the fiscal year ending September 30, ~~2016.~~2017.

Net loan charge-offs for the ~~nine~~three month period ended ~~June 30,~~December 31, 2016 were $~~335~~151, compared to ~~$479,~~$130, for the comparable prior year period. Annualized net charge-offs to average loans were ~~0.09%~~0.11% for the ~~nine~~three months ended ~~June 30,~~December 31, 2016, compared to ~~0.14%~~0.12% for the comparable period in the prior year. Non-accrual loans were ~~$3,226~~$5,750 at ~~June 30,~~December 31, 2016, compared to ~~$748~~$3,191 at September 30, ~~2015.~~2016. Of the ~~$2,478~~$2,559 increase in non-accrual loans, ~~$1,832~~$3,346 is attributable to the CBN acquisition. Even though we are experiencing a slight increase in our nonperforming loans, we believe our credit and underwriting policies have supported more effective lending decisions by the Bank. Long term, we believe our loan servicing procedures will be able to manage delinquency efficiently and effectively. Refer to the “Allowance for Loan Losses” and “Nonperforming Loans, Potential Problem Loans and Foreclosed Properties” sections below for more information related to non-performing loans.

We recorded a provision for loan losses of $0 and $75 for the ~~three and~~ ~~nine~~three month periods ended ~~June 30,~~December 31, 2016~~, compared to $150~~ and ~~$535 for the comparable prior year periods.~~December 31, 2015, respectively. Management believes that the provision taken for the current year ~~three and~~ ~~nine~~three month ~~periods~~period is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans. We continually monitor non-performing loan relationships and will make adjustments to our provision, as necessary, if changing facts and circumstances require a change in the ALL. In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers or our market areas, or otherwise, could all affect the adequacy of our ALL. If there are significant charge-offs against the ALL, or we otherwise determine that the ALL is inadequate, we will need to record an additional PLL in the future. See the section below captioned “Allowance for Loan Losses” in this discussion for further analysis of our provision for loan losses.

Non-interest Income (Loss). The following table reflects the various components of non-interest income for the ~~three and~~ ~~nine~~three month ~~periods~~period ended ~~June 30,~~December 31, 2016 and 2015, respectively.


	Three months ended June 30,				%		Nine months ended June 30,				%		Three months ended December 31,				%
	2016		2015		Change		2016		2015		Change		2016		2015		Change
Non-interest Income:
Net gain (loss) on available for sale securities	$	43	$	13	230.77	%	$	47	$	60	(21.67	)%
Net gain on available for sale securities													$	29	$	—	—	%
Service charges on deposit accounts	410		423		(3.07	)	1,164		1,273		(8.56	)%	398		423		(5.91	)%
Loan fees and service charges	302		276		9.42		886		923		(4.01	)%	603		321		87.85	%
Other	258		219		17.81		676		633		6.79	%	283		206		37.38	%
Total non-interest income	$	1,013	$	931	8.81	%	$	2,773	$	2,889	(4.02	)%	$	1,313	$	950	38.21	%

The decrease of ~~$13 and $109~~$25 in service charges on deposit accounts for the ~~three and~~ ~~nine~~three month ~~periods~~period ended ~~June 30,~~December 31, 2016, ~~respectively,~~ was primarily due to a decrease in overdraft fee income. ~~As a result~~Overdraft fees and charges have decreased industry wide, as customers utilize online and mobile tools to better manage their finances, an industry trend we have also experienced. Loan fees and service charges increased $282, mainly due to gains on payoffs from purchased credit impaired loans in the amount of ~~our branch rationalization, our deposit mix is changing~~$206 and ~~has caused~~an increase in secondary market fee income generated from customer mortgage activity due to advantages over the ~~decrease in overdraft fee~~ARM loan portfolio mortgage offerings. Total non-interest income increased $363 during the current three ~~and nine month periods ended June 30, 2016. The increase of $82 in total non-interest income during the current year three~~ month period ended June 30, 2016, compared to the same period in the prior year, was attributable to increased Visa interchange income due to additional usage of our Visa Debit cards. Total non-interest income decreased $116 during the current nine month period ended June 30,December 31, 2016 over the prior year period, primarily due to a decrease in overdraft fee income, secondary market loan origination fees and a loan sale premium received in the first quarter of the previous year in the amount of $89 recorded in loan fees and service charges.period.

Non-interest Expense. The following table reflects the various components of non-interest expense for the ~~three and~~ ~~nine~~three month ~~periods~~period ended ~~June 30,~~December 31, 2016 and 2015, respectively.


	Three months ended June 30,						%		Nine months ended June 30,						%		Three months ended December 31,						%
	2016			2015			Change		2016			2015			Change		2016			2015			Change
Non-interest Expense:
Salaries and related benefits	$	2,378		$	2,195		8.34	%	$	6,784		$	6,548		3.60	%	$	2,674		$	2,218		20.56	%
Occupancy - net	554			589			(5.94	)	1,835			2,073			(11.48	)	1,068			569			87.70
Office	350			317			10.41		864			825			4.73		281			252			11.51
Data processing	445			393			13.23		1,274			1,177			8.24		472			409			15.40
Amortization of core deposit intangible	31			14			121.43		66			42			57.14		43			14			207.14
Advertising, marketing and public relations	174			126			38.10		456			410			11.22		63			137			(54.01	)
FDIC premium assessment	86			98			(12.24	)	255			306			(16.67	)	83			85			(2.35	)
Professional services	182			251			(27.49	)	574			840			(31.67	)	401			172			133.14
Other	453			375			20.80		1,006			1,050			(4.19	)	378			259			45.95
Total non-interest expense	$	4,653		$	4,358		6.77	%	$	13,114		$	13,271		(1.18	)%	$	5,463		$	4,115		32.76	%

Non-interest expense (annualized) / Average assets	2.82		%	3.08		%	(8.44	)%	2.68		%	3.12		%	(14.10	)%	3.14		%	2.81		%	11.74	%

During the three months ended ~~June 30,~~December 31, 2016, salaries and related benefits costs increased ~~$183,~~$456 relative to the comparable prior year period, primarily due to the addition of new employees related to the CBN acquisition. During the current ~~three and~~ ~~nine~~three month ~~periods,~~period, occupancy expense ~~decreased~~increased primarily due to efficiencies and cost savings realized over recent periods through management initiatives including branch closures and technology improvements. Occupancy costs consist primarily of office rental and depreciation expenses. Data processing expenses increased during the three and nine month periods ended June 30, 2016, due to conversionrent termination costs related to the ~~CBN acquisition, and the Central Bank selective deposits and loans purchase.~~four branch closures in Eastern Wisconsin. We are continuing to focus on technology to provide progressive, online and mobile banking services that complement friendly, knowledgeable bankers in convenient community bank locations. As we redefine and expand our footprint, we expect ~~these~~data processing costs to continue to remain higher. Amortization of core deposit intangible expense increased due to the premium paid for the Central Bank selective deposits purchase and the CBN acquisition for the current three ~~and nine~~ month ~~periods~~period ended ~~June 30,~~December 31, 2016, compared to the same ~~periods~~period in the prior year. Professional ~~services expense decreased in the current year three month period primarily~~fees and other non-interest expenses increased due to ~~higher professional services costs~~legal, audit and ~~related accruals in the comparable prior period related to~~ branch ~~closures. Other expense increased during the three and nine month periods ended June 30, 2016, due to increased insurance costs and loan related legal and collection~~closure expenses. Total non-interest expense increased ~~$295 and decreased $157, respectively,~~increased $1,348, for the three ~~and nine~~ month ~~periods~~period ended ~~June 30,~~December 31, 2016, compared to the same ~~periods~~period in the prior year.

Income Taxes. Income tax expense was ~~$572~~$467 and ~~$1,415~~$466 for the three ~~and~~ ~~nine~~months ended ~~June 30,~~December 31, 2016~~, respectively, compared to $337~~ and ~~$1,112 for the same period in the prior year.~~December 31, 2015, respectively. The effective tax rate decreased from ~~36.7%~~35.5% to ~~35.1% for~~33.2% from the ~~nine~~three month periods ended ~~June 30,~~December 31, 2016 and December 31, 2015, ~~and 2016,~~ respectively.

BALANCE SHEET ANALYSIS

Loans. Gross Loan balances ~~increased~~decreased by $~~133,536~~25,535, or ~~29.64%~~4.45%, to $~~584,046~~548,904 as of ~~June 30,~~December 31, 2016 from $~~450,510~~574,439 at September 30, ~~2015~~2016 mainly due our increased focus on secondary market lending for one to four family residential loans and exiting the ~~acquisition of CBN loans in the amount of $113,659.~~indirect lending business. At ~~June 30,~~December 31, 2016,, the loan portfolio was comprised of ~~$350,534~~$327,240 of loans secured by real estate, or ~~60.0%~~59.6% of total loans including ~~$156,621~~$151,176 in commercial and agricultural real estate loans, and ~~$233,512~~$221,508 of consumer and other non-real estate loans, or ~~40.0%~~40.4% of total loans. Consumer and other loans include secured consumer originated indirect loans of ~~$123,413~~$111,507 secured primarily by boats and travel trailers, ~~$47,865~~$44,006 of third party purchased indirect loans secured primarily by household goods, ~~$13,331 of automobile loans~~ and C&I and agricultural non-real estate loans totaling ~~$38,725.~~$47,540. At September 30, ~~2015~~2016, the loan portfolio mix included real estate loans of ~~$243,959,~~$340,591 or ~~54.1%~~59.3% of total loans including ~~$63,266~~$117,138 in commercial and agricultural real estate loans, and consumer and other loans of ~~$207,301,~~$233,657, or ~~45.9%~~40.7% of total loans. Consumer and other loans include secured consumer loans of ~~$130,880~~$119,073 in originated indirect loans, ~~$39,705~~$49,221 of third party purchased indirect loans, ~~$14,113 of automobile loans~~ and C&I and agricultural loans totaling ~~$10,010.~~$45,648.

During the quarter ended March 31, 2016, we entered into an agreement to originate and sell longer term secured consumer indirect paper loans. Our expectation is that this will reduce our secured consumer indirect loan portfolio growth, while increasing our non-interest loan fee income due to the origination fee income generated with each loan sold. Through, June 30, 2016, we have sold $11,039 in loans and generated $134 in origination loan fee income due to the sale of these secured consumer indirect paper loans.

Allowance for Loan Losses. The loan portfolio is our primary asset subject to credit risk. To address this credit risk, we maintain an ALL for probable and inherent credit losses through periodic charges to our earnings. These charges are shown in our consolidated statements of operations as PLL. See “Provision for Loan Losses” earlier in this quarterly report. We attempt to control, monitor and minimize credit risk through the use of prudent lending standards, a thorough review of potential borrowers prior to lending and ongoing and timely review of payment performance. Asset quality administration, including early identification of loans performing in a substandard manner, as well as timely and active resolution of problems, further enhances management of credit risk and minimization of loan losses. Any losses that occur and that are charged off against the ALL are periodically reviewed with specific efforts focused on achieving maximum recovery of both principal and interest.

At least quarterly, we review the adequacy of the ALL. Based on an estimate computed pursuant to the requirements of ASC 450-10, “Accounting for Contingencies” and ASC 310-10, “Accounting by Creditors for Impairment of a Loan”, the analysis of the ALL consists of three components: (i) specific credit allocation established for expected losses relating to specific impaired loans for which the recorded investment in the loan exceeds its fair value; (ii) general portfolio allocation based on historical loan loss experience for significant loan categories; and (iii) general portfolio allocation based on qualitative factors such as economic conditions and other relevant factors specific to the markets in which we operate. We continue to refine our ALL methodology by introducing a greater level of granularity to our loan portfolio. We currently segregate loans into pools based on common risk characteristics for purposes of determining the ALL. The additional segmentation of the portfolio is intended to provide a more effective basis for the determination of qualitative factors affecting our ALL. In addition, management continually evaluates our ALL methodology to assess whether modifications in our methodology are appropriate in light of underwriting practices, market conditions, identifiable trends, regulatory pronouncements or other factors. We believe that any modifications or changes to the ALL methodology would be to enhance the ALL. However, any such modifications could result in materially different ALL levels in future periods.

The specific credit allocation for the ALL is based on a regular analysis of all loans that are considered impaired. In compliance with ASC 310-10, the fair value of the loan is determined based on either the present value of expected cash flows discounted at the loan’s effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of the underlying collateral less the expected cost of sale for such collateral. At ~~June~~December 31, 2016 and September 30, 2016, we had ~~108~~123 and 109 such impaired loans, all secured by real estate or personal property with an aggregate recorded investment of ~~$5,584.~~$5,247 and $5,397, respectively. Of the ~~108~~ impaired loans, respectively, there were 3642 such individual loans where estimated fair value was less than their book value (i.e. we deemed impairment to exist) totaling ~~$2,352~~$2,287 for which ~~$611~~$477 in specific ALL was recorded as of ~~June 30,~~December 31, 2016.

At ~~June 30,~~December 31, 2016, the ALL was ~~$6,236,~~$5,917, or ~~1.07%~~1.08% of our total loan portfolio, compared to ALL of $~~6,496~~6,068, or ~~1.44%~~1.06% of the total loan portfolio at September 30, ~~2015~~2016. This level was based on our analysis of the loan portfolio risk at ~~June 30,~~December 31, 2016, taking into account the factors discussed above. At ~~June 30,~~December 31, 2016, the ALL was ~~1.16%~~1.17% of our total loan portfolio, excluding the third party purchased consumer loans referenced elsewhere herein, compared to ~~1.58%~~1.16% of the total loan portfolio excluding these third party purchased consumer loans at September 30, ~~2015~~2016. We have established a separate restricted reserve account for these third party purchased consumer loans. The funds in the reserve account are to be released to compensate the Bank for any nonperforming purchased loans that are not purchased back by the seller or substituted with performing loans and are ultimately charged off.

4746

All of the nine factors identified in the FFIEC's Interagency Policy Statement on the Allowance for Loan and Lease Losses are taken into account in determining the ALL. The impact of the factors in general categories are subject to change; thus the allocations are management’s estimate of the loan loss categories in which the probable and inherent loss has occurred as of the date of our assessment. Of the nine factors, we believe the following have the greatest impact on our customers’ ability to repay loans and our ability to recover potential losses through collateral sales: (1) lending policies and procedures; (2) economic and business conditions; and (3) the value of the underlying collateral. As loan balances and estimated losses in a particular loan type decrease or increase and as the factors and resulting allocations are monitored by management, changes in the risk profile of the various parts of the loan portfolio may be reflected in the allocated allowance. The general component covers non-impaired loans and is based on historical loss experience adjusted for these and other qualitative factors. In addition, management continues to refine the ALL estimation process as new information becomes available. These refinements could also cause increases or decreases in the ALL. The unallocated portion of the ALL is intended to account for imprecision in the estimation process or relevant current information that may not have been considered in the process.

Nonperforming Loans, Potential Problem Loans and Foreclosed Properties. We practice early identification of non-accrual and problem loans in order to minimize the Bank's risk of loss. Non-performing loans are defined as non-accrual loans and restructured loans that were 90 days or more past due at the time of their restructure, or when management determines that such classification is warranted. The accrual of interest income is discontinued on our loans according to the following schedule:

•~~Commercial~~Commercial/agricultural real estate loans, ~~including~~ past due 90 days or more;

•Commercial/agricultural ~~and C&I~~non-real estate loans, past due 90 days or more;

•Closed ~~end~~ended consumer non-real estate loans past due 120 days or more; and

•~~Real~~Residential real estate loans and open ended consumer non-real estate loans past due 180 days or more.

When interest accruals are discontinued, interest credited to income is reversed. If collection is in doubt, cash receipts on non-accrual loans are used to reduce principal rather than being recorded as interest income. A TDR typically involves the granting of some concession to the borrower involving a loan modification, such as modifying the payment schedule or making interest rate changes. TDR loans may involve loans that have had a charge-off taken against the loan to reduce the carrying amount of the loan to fair market value as determined pursuant to ASC 310-10.

4847

The following table identifies the various components of non-performing assets and other balance sheet information as of the dates indicated below and changes in the ALL for the periods then ended:


	June 30, 2016 and Nine Months Then Ended			September 30, 2015 and Twelve Months Then Ended			December 31, 2016 and Three Months Then Ended			September 30, 2016 and Twelve Months Then Ended
Nonperforming assets:
Nonaccrual loans ~~(1)~~	$	3,226		$	748		$	5,750		$	3,191
Accruing loans past due 90 days or more ~~(1)~~	979			473			894			380
Total nonperforming loans (“NPLs”)(1)	4,205			1,221			6,644			3,571
Other real estate owned (1)	835			838			655			725
Other collateral owned	76			64			129			52
Total nonperforming assets (“NPAs”)	$	5,116		$	2,123		$	7,428		$	4,348
Troubled Debt Restructurings (“TDRs”) (1)	$	5,446		$	4,010
Nonaccrual TDRs (1)	1,026			332
Troubled Debt Restructurings (“TDRs”) Originated Loans							$	3,529		$	3,733
Nonaccrual TDRs - Originated Loans							$	410		$	515
Average outstanding loan balance	517,278			460,438			$	561,672		$	512,475
Loans, end of period (1) (2)	584,046			450,510
Loans, end of period (2)							$	548,904		$	574,439
Total assets, end of period	723,009			580,148			$	686,414		$	695,865
ALL, at beginning of period	$	6,496		$	6,506		$	6,068		$	6,496
Loans charged off:
Real estate loans	(111		)	(405		)
Consumer and other loans	(394		)	(601		)
Residential real estate							(43		)	(140		)
Commercial/Agricultural real estate							—			—
Consumer non-real estate							(172		)	(460		)
Commercial/Agricultural non-real estate							—			(118		)
Total loans charged off	(505		)	(1,006		)	(215		)	(718		)
Recoveries of loans previously charged off:
Real estate loans	7			69
Consumer and other loans	163			271
Residential real estate							3			11
Commercial/Agricultural real estate							—			—
Consumer non-real estate							61			204
Commercial/Agricultural non-real estate							—			—
Total recoveries of loans previously charged off:	170			340			64			215
Net loans charged off (“NCOs”)	(335		)	(666		)	(151		)	(503		)
Additions to ALL via provision for loan losses charged to operations	75			656			—			75
ALL, at end of period	$	6,236		$	6,496		$	5,917		$	6,068
Ratios:
ALL to NCOs (annualized)	1,396.12		%	975.38		%	979.64		%	1,206.36		%
NCOs (annualized) to average loans	0.09		%	0.14		%	0.11		%	0.10		%
ALL to total loans	1.07		%	1.44		%	1.08		%	1.06		%
NPLs to total loans	0.72		%	0.27		%	1.21		%	0.62		%
NPAs to total assets	0.71		%	0.37		%	1.08		%	0.62		%

~~(1)~~

The captions in the table above include the following amounts attributable to the CBN acquisition: Nonaccrual loans; $1,832, Accruing loans past due 90 days or more; $269, Other real estate owned; $283, TDRs; $1,648, Nonaccrual TDRs; $495, Total loans; $112,327, ALL/Charge offs/Recoveries/Provision; all $0, as loans were recorded at fair value at date of acquisition, with no adjustments during the period subsequent thereto.

(1) Total Nonperforming assets increased due to the CBN acquisition in Fiscal 2016. Acquired nonperforming loans were $5,090 and $1,778 at December 31, 2016 and September 30, 2016, respectively. Acquired real estate owned property balances were $143 and $212 at December 31, 2016 and September 31, 2016, respectively.

(2) Total loans at ~~June 30,~~December 31, 2016,, include $~~47,865~~$44,006 in consumer and other loans purchased from a third party. See Note 3 in the accompanying Condensed Consolidated Financial Statements regarding the separate restricted reserve account established for these purchased consumer loans.

4948

An aging analysis of the Company’s originated and acquired loans as of ~~June 30,~~December 31, 2016 and September 30, ~~2015,~~2016, respectively, was as follows


	30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days		Total Past Due		30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days		Total Past Due		Nonaccrual Loans		Recorded Investment > 89 Days and Accruing
June 30, 2016
December 31, 2016
Originated loans	$	1,376	$	275	$	1,775	$	3,426	$	2,584	$	807	$	1,676	$	5,067	$	1,252	$	863
Acquired loans	921		1,462		1,872		4,255		568		2,048		824		3,440		4,498		31
Total	$	2,297	$	1,737	$	3,647	$	7,681	$	3,152	$	2,855	$	2,500	$	8,507	$	5,750	$	894
September 30, 2015
September 30, 2016
Originated loans	$	1,179	$	754	$	699	$	2,632	$	1,677	$	1,273	$	1,372	$	4,322	$	1,600	$	380
Acquired loans	—		—		—		—		100		96		1,491		1,687		1,591		—
Total	$	1,179	$	754	$	699	$	2,632	$	1,777	$	1,369	$	2,863	$	6,009	$	3,191	$	380

We believe our credit and underwriting policies continue to support more effective lending decisions by the Bank, which increases the likelihood of maintaining loan quality going forward. Moreover, we believe the favorable trends noted in previous quarters regarding our nonperforming loans and nonperforming assets reflect our continued adherence to improved underwriting criteria and practices along with improvements in macroeconomic factors in our credit markets. We believe our current ALL is adequate to cover probable losses in our current loan portfolio.

Non-performing loans of ~~$4,205~~$6,644 at ~~June 30,~~December 31, 2016, which included ~~$1,026~~$410 of non-accrual troubled debt restructured originated loans, reflected an increase of ~~$2,984~~$3,073 from the non-performing loans balance of ~~$1,221~~$3,571 at September 30, ~~2015.~~2016. The increase was mainly due to acquired nonperforming loan balances. These non-performing loan relationships are secured primarily by collateral including residential real estate or the consumer assets financed by the loans.

Our non-performing assets were $~~5,116~~7,428 at ~~June 30,~~December 31, 2016, or ~~0.71%~~1.08% of total assets, compared to $~~2,123~~4,348, or ~~0.37%~~0.62% of total assets at September 30, ~~2015~~2016. The increase in non-performing assets since September 30, ~~2015~~2016 was primarily a result of an increase in nonperforming loans acquired through the merger of CBN.

Other real estate owned ("OREO") decreased by ~~$3,~~$70, from $~~838~~725 at September 30, ~~2015~~2016 to $~~835~~655 at ~~June 30,~~December 31, 2016. Other collateral owned increased ~~$12~~$77 during the ~~nine~~three months ended ~~June 30,~~December 31, 2016 to $76129 from the September 30, ~~2015~~2016 balance of $6452. We continue to aggressively liquidate OREO and other collateral owned as part of our overall credit risk strategy.

Net charge offs for the ~~nine~~three month period ended ~~June 30,~~December 31, 2016 were $~~335~~151, compared to ~~$479~~$130 for the same prior year period. The ratio of annualized net charge-offs to average loans receivable was ~~0.09%~~0.11% for the ~~nine~~three month period ended ~~June 30,~~December 31, 2016, compared to ~~0.14%~~0.10% for the twelve months ended September 30, ~~2015~~2016. ~~Improved net charge-offs during the current year to date period were primarily a result of the overall credit quality improvement within our loan portfolio.~~

Investment Securities. We manage our securities portfolio in an effort to enhance income and provide liquidity. Our investment portfolio is comprised of securities available for sale and securities held to maturity. The weighted average life of the investment portfolio was ~~4.1~~5.0 years at ~~June 30,~~December 31, 2016, compared with ~~4.6~~4.0 years at September 30, ~~2015.~~2016. The modified duration of the investment portfolio was ~~3.8~~4.5 years at ~~June 30,~~December 31, 2016, compared with ~~4.2~~3.7 years at September 30, ~~2015.~~2016.

Securities held to maturity were ~~$7,163~~$6,235 at ~~June 30,~~December 31, 2016, compared with ~~$8,012~~$6,669 at September 30, ~~2015~~2016. Securities available for sale, which represent the majority of our investment portfolio, were ~~$84,508~~$81,136 at ~~June 30,~~December 31, 2016, compared with ~~$79,921~~$80,123 at September 30, ~~2015~~2016. ~~We increased our investment portfolio with funds received from the Central Bank selective loans and deposit purchase and the CBN acquisition.~~

5049

The amortized cost and market values of our available for sale securities by asset categories as of the dates indicated below were as follows:


Securities available for sale	Amortized Cost		Fair Value		Amortized Cost		Fair Value
June 30, 2016
December 31, 2016
U.S. government agency obligations	$	14,690	$	14,737	$	15,695	$	15,079
Obligations of states and political subdivisions	32,941		33,773		32,808		32,147
Mortgage-backed securities	35,125		35,559		33,937		33,416
Federal Agricultural Mortgage Corporation	70		65		70		116
Trust preferred securities	$	374	$	374	378		378
Totals	$	83,200	$	84,508	$	82,888	$	81,136
September 30, 2015
September 30, 2016
U.S. government agency obligations	$	15,240	$	15,020	$	16,388	$	16,407
Obligations of states and political subdivisions	27,573		27,407		33,405		34,012
Mortgage-backed securities	37,451		37,440		28,861		29,247
Federal Agricultural Mortgage Corporation	71		54		70		81
Trust preferred securities					376		376
Totals	$	80,335	$	79,921	$	79,100	$	80,123

The amortized cost and fair value of our held to maturity securities by asset categories as of the dates noted below were as follows:


Securities held to maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
June 30, 2016
December 31, 2016
Obligations of states and political subdivisions	$	5,847	$	6,118	$	1,314	$	1,320
Mortgage-backed securities	1,316		1,334		4,921		5,023
Totals	$	7,163	$	7,452	$	6,235	$	6,343
September 30, 2015
September 30, 2016
Obligations of states and political subdivisions	$	1,319	$	1,318	$	1,315	$	1,335
Mortgage-backed securities	6,693		6,901		5,354		5,609
Totals	$	8,012	$	8,219	$	6,669	$	6,944

The composition of our available for sale portfolios by credit rating as of the dates indicated below was as follows:


	June 30, 2016				September 30, 2015				December 31, 2016				September 30, 2016
Securities available for sale	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. government agency	$	49,815	$	50,297	$	52,692	$	52,460	$	49,632	$	48,495	$	45,249	$	45,654
AAA	1,519		1,585		734		735		728		718		730		747
AA	24,666		25,226		22,228		22,057		24,991		24,471		25,574		26,006
A	5,066		5,241		2,970		2,959		5,406		5,330		5,414		5,567
BBB	—		—		—		—		—		—		—		—
Below investment grade	—		—		—		—		—		—		—		—
Non-rated	2,134		2,159		1,711		1,710		2,131		2,122		2,133		2,149
Total	$	83,200	$	84,508	$	80,335	$	79,921	$	82,888	$	81,136	$	79,100	$	80,123

The composition of our held to maturity portfolio by credit rating as of the dates indicated was as follows:


	June 30, 2016				September 30, 2015				December 31, 2016				September 30, 2016
Securities held to maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. government agency	$	5,847	$	6,118	$	6,693	$	6,901	$	4,921	$	5,023	$	5,354	$	5,609
AAA	—		—		—		—		—		—		—		—
AA	—		—		—		—		—		—		—		—
A	966		978		969		968		964		965		965		982
BBB	—		—		—		—		—		—		—		—
Below investment grade	—		—		—		—		—		—		—		—
Non-rated	350		356		350		350		350		355		350		353
Total	$	7,163	$	7,452	$	8,012	$	8,219	$	6,235	$	6,343	$	6,669	$	6,944

At ~~June 30,~~December 31, 2016, securities with a carrying value of ~~$2,857~~$3,107 were pledged against a line of credit with the Federal Reserve Bank of Minneapolis. As of ~~June 30,~~December 31, 2016, this line of credit had a zero balance. The Bank has pledged U.S. Government Agency securities with a carrying value of ~~$6,164~~$7,820 and mortgage-backed securities with a carrying value of ~~$21,388~~$20,419 as collateral against specific municipal deposits.

Deposits. Deposits ~~increased~~decreased to ~~$585,224~~$535,112 at ~~June 30,~~December 31, 2016, from ~~$456,298~~$557,677 at September 30, ~~2015,~~2016, largely due to ~~deposits purchased from Central Bank in Rice Lake and Barron, Wisconsin in the amount of $27,131, and deposits acquired through the CBN acquisition in the amount of $151,020, partially offset by~~ deposit ~~runoff in the markets where branch closures took place and a reduction in checking balances from Insider accounts~~run-off related to the CBN ~~acquisition.~~acquisition and the announced closure of the four Eastern Wisconsin branches.

The following is a summary of deposits by type at ~~June 30,~~December 31, 2016 and September 30, ~~2015,~~2016, respectively:


	June 30, 2016		September 30, 2015		December 31, 2016		September 30, 2016
Non-interest bearing demand deposits	$	37,555	$	19,354	$	47,463	$	45,408
Interest bearing demand deposits	52,138		22,547		50,779		48,934
Savings accounts	49,906		29,395		51,826		52,153
Money market accounts	148,810		146,201		125,923		137,234
Certificate accounts	296,815		238,801		259,121		273,948
Total deposits	$	585,224	$	456,298	$	535,112	$	557,677

Since December 2012, we have closed ~~eleven~~sixteen branches and sold the deposits and loans in one retail branch, resulting in ~~nine~~ten markets we have exited. As of September 30, ~~2015,~~2016, the deposit account balances remaining in these ~~nine~~ten exited markets totaled ~~$56,915.~~$85,395, including the four closed branches in Eastern Wisconsin. As of ~~June 30,~~December 31, 2016, these deposit account balances have declined to ~~$44,482.~~$72,157. We expect these deposit balances to continue to decline as certificates mature and accounts are closed.

Our objective is to grow core deposits and build customer relationships in our core markets by expanding our branch network, deposit product offerings, including Treasury Management, and providing excellent customer service. Management expects to continue to place emphasis on both retaining and generating additional core deposits in 2016 through competitive pricing of deposit products, our branch delivery systems that have already been established and electronic banking.

Institutional certificates of deposit as a funding source ~~decreased~~increased to ~~$27,682~~$25,438 at ~~June 30,~~December 31, 2016 from ~~$32,099~~$22,822 as of September 30, ~~2015~~2016. Institutional certificates of deposit remain an important part of our deposit mix as we continue to pursue funding sources to lower the Bank's cost of funds.

The Bank had $11,959 and $22,773 in brokered deposits at ~~June 30,~~December 31, 2016 and September 30, ~~2015~~2016, respectively. Brokered deposit levels are within all regulatory directives thereon.

Federal Home Loan Bank (FHLB) advances (borrowings). FHLB advances were ~~$58,874~~$73,491 as of ~~June 30,~~December 31, 2016 and ~~$58,891~~$59,291 as of September 30, ~~2015.~~2016, as we continue to utilize these advances, as necessary, to supplement core deposits to meet our funding and liquidity needs, and as we evaluate all options to lower the Bank's cost of funds. On May 16, 2016, we entered into a Loan Agreement with First Tennessee Bank National Association ("FTB") evidencing an $11,000 term loan maturing on May 15, 2021. The proceeds from the Loan were used by the Company for the sole purpose of financing the acquisition, by merger, of CBN. On September 30, 2016, we amended and restated the loan Agreement with FTB whereby FTB extended a $3,000 revolving line of credit to the Company for the purpose of financing the previously announced stock repurchase

program, pursuant to which the Company may purchase up to 525,200 shares of its common stock, or approximately 10 percent of the outstanding shares from time to time through October 1, 2017. At September 30, 2016, the available and unused portion of this borrowing arrangement was $3,000. The Company has pledged 100% of Bank stock as collateral for the FTB loan and credit facilities.

Stockholders’ Equity. Total stockholders’ equity was $~~63,595~~63,826 at ~~June 30,~~December 31, 2016, compared to $~~60,535~~64,544 at September 30, ~~2015~~2016. Total stockholders’ equity ~~increased~~decreased by $~~3,060~~718, primarily as a result of ~~an increase~~a decrease in ~~retained earnings and~~ accumulated other comprehensive income during the ~~nine~~three months ended ~~June 30,~~December 31, 2016.

Liquidity and Asset / Liability Management. Liquidity management refers to our ability to ensure cash is available in a timely manner to meet loan demand and depositors’ needs, and meet other financial obligations as they become due without undue cost, risk or disruption to normal operating activities. Asset / liability management refers to our ability to efficiently and effectively utilize customer deposits and other funding sources to generate sufficient risk-weighted yields on interest earning assets. We manage and monitor our short-term and long-term liquidity positions and needs through a regular review of maturity profiles, funding sources, and loan and deposit forecasts to minimize funding risk. A key metric we monitor is our liquidity ratio, calculated as cash, twelve month projected principal and ~~investments with maturities~~interest payments, floater bond receivable and Bank Owned Life Insurance divided by deposits maturing in less than one-year ~~divided by deposits with maturities less than one-year.~~and Federal Home Loan Bank borrowings due in the next twelve months. At ~~June 30,~~December 31, 2016, our liquidity ratio was ~~9.01%~~9.26%, which is slightly below our targeted liquidity ratio of 10.0%., but represents a 3.01% improvement relative to September 30, 2016.

Our primary sources of funds are deposits; amortization, prepayments and maturities of outstanding loans; other short-term investments; and funds provided from operations. We use our sources of funds primarily to meet ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, and to fund loan commitments. While scheduled payments from the amortization of loans and maturing short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. Although ~~$149,760~~$132,168 of our ~~$297,081 (50.41%~~$259,121 (51.0%) CD portfolio as of ~~June 30,~~December 31, 2016 will mature within the next 12 months, we have historically retained a majority of our maturing CD’s. However, ~~$20,670,~~$25,703, or ~~13.80%~~19.5%, of the CD maturities within the next 12 months are from deposits located within the ~~nine~~ten markets we have exited and we don't expect to retain a majority of these CD's. Through new deposit product offerings to our consumer and commercial loan customers, we are currently attempting to strengthen customer relationships by building core deposit relationships. In the present interest rate environment, and based on maturing yields, this should also improve our cost of funds. While we believe that our branch network attracts core deposits and enhances the Bank's long-term liquidity, a key component to our broader liquidity management strategy, we continue to analyze the profitability of our branch network.

We maintain access to additional sources of funds including FHLB borrowings and lines of credit with the Federal Reserve Bank, US Bank, Bankers’ Bank and First Tennessee Bank. We utilize FHLB borrowings to leverage our capital base, to provide funds for our lending and investment activities, and to manage our interest rate risk. Our borrowing arrangement with the FHLB calls for pledging certain qualified real estate loans, and borrowing up to 75% of the value of those loans, not to exceed 35% of the Bank’s total assets. ~~Currently,~~As of December 31, 2016, we have approximately $~~67,300~~67,728 available under this ~~arrangement.~~arrangement, as compared to $90,500 at September 30, 2016. We also maintain lines of credit of ~~$3,290~~$2,036 with the Federal Reserve Bank, $5,000 with US Bank, $13,500 with Bankers’ Bank and $11,000 with First Tennessee Bank as part of our contingency funding plan. The Federal Reserve Bank line of credit is based on 80% of the collateral value of the agency securities being held at the Federal Reserve Bank. The Bankers’ Bank and First Tennessee line of credit is a discretionary line of credit. As of ~~June 30,~~December 31, 2016, our line of credit balance with the Federal Home Loan Bank was $~~58,874~~73,491. As of the same date, our line of credit balance with the Federal Reserve Bank, US Bank, Bankers' Bank and First Tennessee Bank was $0.

Off-Balance Sheet Liabilities. Some of our financial instruments have off-balance sheet risk. These instruments include unused commitments for lines of credit, overdraft protection lines of credit and home equity lines of credit, as well as commitments to extend credit. As of ~~June 30,~~December 31, 2016, the Company had ~~$24,849~~$31,581 in unused commitments, compared to ~~$24,097~~$28,476 in unused commitments as of September 30, ~~2015~~2016.

Capital Resources. As of ~~June 30,~~December 31, 2016, as shown in the table below, our Tier 1 and Risk-based capital levels exceeded levels necessary to be considered “Well Capitalized” under Prompt Corrective Action ~~provisions.~~provisions for both the Bank and at the Company level.

Below are the amounts and ratios for our capital levels as of the dates noted below for the Bank.


	Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio		Amount		Ratio		Amount			Ratio		Amount			Ratio
As of June 30, 2016 (Unaudited)
As of December 31, 2016 (Unaudited)
Total capital (to risk weighted assets)	$	74,137,000	14.2	%	$	41,694,000	>=	8.0	%	$	52,117,000	>=	10.0	%	$	73,302,000	14.7	%	$	39,852,000	>=	8.0	%	$	49,815,000	>=	10.0	%
Tier 1 capital (to risk weighted assets)	67,901,000		13.0	%	31,270,000		>=	6.0	%	41,694,000		>=	8.0	%	67,385,000		13.5	%	29,889,000		>=	6.0	%	39,852,000		>=	8.0	%
Common equity tier 1 capital (to risk weighted assets)	67,901,000		13.0	%	23,453,000		>=	4.5	%	33,876,000		>=	6.5	%	67,385,000		13.5	%	22,417,000		>=	4.5	%	32,380,000		>=	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	67,901,000		9.2	%	29,546,000		>=	4.0	%	36,933,000		>=	5.0	%	67,385,000		9.8	%	27,538,000		>=	4.0	%	34,422,000		>=	5.0	%
As of September 30, 2015 (Audited)
As of September 30, 2016 (Audited)
Total capital (to risk weighted assets)	$	64,930,000	16.5	%	$	31,443,000	>=	8.0	%	$	39,304,000	>=	10.0	%	$	72,345,000	14.1	%	$	41,189,000	>=	8.0	%	$	51,487,000	>=	10.0	%
Tier 1 capital (to risk weighted assets)	59,997,000		15.3	%	23,583,000		>=	6.0	%	31,443,000		>=	8.0	%	66,278,000		12.9	%	30,892,000		>=	6.0	%	41,189,000		>=	8.0	%
Common equity tier 1 capital (to risk weighted assets)	59,997,000		15.3	%	17,687,000		>=	4.5	%	25,548,000		>=	6.5	%	66,278,000		12.9	%	23,169,000		>=	4.5	%	33,466,000		>=	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	59,997,000		10.4	%	23,031,000		>=	4.0	%	28,788,000		>=	5.0	%	66,278,000		9.3	%	28,428,000		>=	4.0	%	35,535,000		>=	5.0	%

At ~~June 30,~~December 31, 2016, the Bank was categorized as "Well Capitalized" under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator.

Below are the amounts and ratios for our capital levels as of the dates noted below for the Company.



	Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio
As of December 31, 2016 (Unaudited)
Total capital (to risk weighted assets)	$	65,634,000	13.2	%	$	39,852,000	>=	8.0	%	$	49,815,000	>=	10.0	%
Tier 1 capital (to risk weighted assets)	59,717,000		12.0	%	29,889,000		>=	6.0	%	39,852,000		>=	8.0	%
Common equity tier 1 capital (to risk weighted assets)	59,717,000		12.0	%	22,417,000		>=	4.5	%	32,380,000		>=	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	59,717,000		8.7	%	27,538,000		>=	4.0	%	34,422,000		>=	5.0	%
As of September 30, 2016 (Audited)
Total capital (to risk weighted assets)	$	64,811,000	12.6	%	$	41,189,000	>=	8.0	%	$	51,487,000	>=	10.0	%
Tier 1 capital (to risk weighted assets)	58,743,000		11.4	%	30,892,000		>=	6.0	%	41,189,000		>=	8.0	%
Common equity tier 1 capital (to risk weighted assets)	58,743,000		11.4	%	23,169,000		>=	4.5	%	33,466,000		>=	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	58,743,000		8.3	%	28,428,000		>=	4.0	%	35,535,000		>=	5.0	%

At December 31, 2016, the Company was categorized as "Well Capitalized" under Prompt corrective Action Provisions.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time and are not predictable or controllable. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. Like other financial institutions, our interest income and interest expense are affected by general economic conditions and policies of regulatory authorities, including the monetary policies of the Federal Reserve. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk through several means including through the use of third party reporting software. In monitoring interest rate risk we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates.

In order to manage the potential for adverse effects of material and prolonged increases in interest rates on our results of operations, we adopted asset and liability management policies to better align the maturities and re-pricing terms of our interest-earning assets and interest-bearing liabilities. These policies are implemented by our Asset and Liability Management Committee ("ALCO"). The ALCO is comprised of members of senior management and the Board of Directors. The ALCO establishes guidelines for and monitors the volume and mix of our assets and funding sources, taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The Committee’s objectives are to manage assets and funding sources to produce results that are consistent with liquidity, cash flow, capital adequacy, growth, risk and profitability goals for the Bank. The ALCO meets on a regularly scheduled basis to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and

liabilities and interest rate risk exposure limits versus current projections pursuant to net present value of portfolio equity analysis. At each meeting, the Committee recommends strategy changes, as appropriate, based on this review. The Committee

is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the Bank’s Board of Directors on a regularly scheduled basis.

In order to manage our assets and liabilities and achieve desired levels of liquidity, credit quality, cash flow, interest rate risk, profitability and capital targets, we have focused our strategies on:

originating shorter-term secured consumer, commercial and agricultural loan maturities;

originating variable rate commercial and agricultural loans;

managing our funding needs by utilizing core deposits, institutional certificates of deposits and borrowings as appropriate to extend terms and lock in fixed interest rates;

reducing non-interest expense and managing our efficiency ratio by implementing technologies to enhance customer service and increase employee productivity;

realigning supervision and control of our branch network by modifying their configuration, staffing, locations and reporting structure to focus resources on our most productive markets;

managing our exposure to changes in interest rates, including but not limited to the sale of longer term fixed rate consumer ~~loans. In fiscal 2015, the Bank sold approximately $15.7 million in fixed rate longer term consumer real estate~~ loans ~~to lessen our exposure to changes in interest rates. Additional loan sales may occur in the future~~ if the analysis proves advantageous to the Bank; and

originating ~~balloon mortgage~~ARM loans with a term of 7 years or less to minimize the impact of sudden rate changes.

~~Selling longer term secured consumer Indirect Paper loans.~~

At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the ALCO may determine to increase or decrease the Bank’s interest rate risk position somewhat in order to manage net interest margin.

The following table sets forth, at ~~March 31,~~September 30, 2016 (the most recent date available), an analysis of our interest rate risk as measured by the estimated changes in Economic Value of Equity ("EVE") resulting from an immediate and permanent shift in the yield curve (up 300 basis points and down 100 basis points). As of ~~June 30,~~December 31, 2016, due to the current level of interest rates, EVE estimates for decreases in interest rates greater than 100 basis points are not meaningful.


Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1)	Economic Value of Equity (EVE)							EVE Ratio (EVE as a % of Assets)					Economic Value of Equity (EVE)							EVE Ratio (EVE as a % of Assets)
	Amount		Change			% Change		EVE Ratio		Change			Amount		Change			% Change		EVE Ratio		Change
	(Dollars in thousands)												(Dollars in thousands)
+300 bp	$	37,644	$	(41,436	)	(52	)%	6.95	%	(606	)	bp	$	60,132	$	(35,255	)	(37	)%	9.44	%	(408	)	bp
+200 bp	55,246		(23,834		)	(30	)%	9.77	%	(324	)		76,060		(19,327		)	(20	)%	11.49	%	(203	)
+100 bp	69,524		(9,556		)	(12	)%	11.82	%	(119	)		88,509		(6,878		)	(7	)%	12.92	%	(60	)
0 bp	79,080		—			—		13.01	%	—			95,387		—			—		13.52	%	—
-100 bp	81,019		1,939			2	%	13.03	%	2			93,928		(1,459		)	(2	)%	13.05	%	(47	)


(1)	Assumes an immediate and parallel shift in the yield curve at all maturities.

The following table sets forth, at September 30, 2015, an analysis of our interest rate risk as measured by the estimated changes in EVE resulting from an immediate and permanent shift in the yield curve (up 300 basis points and down 100 basis points).



Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1)	Economic Value of Equity (EVE)							EVE Ratio (EVE as a % of Assets)
	Amount		Change			% Change		EVE Ratio		Change
	(Dollars in thousands)
+300 bp	$	36,916	$	(41,454	)	(53	)%	7.10	%	(505	)	bp
+200 bp	54,752		(23,618		)	(30	)%	10.06	%	(209	)
+100 bp	68,836		(9,534		)	(12	)%	12.15	%	(121	)
0 bp	78,370		—			—		13.36	%	—
-100 bp	80,768		2,398			3	%	13.45	%	9

(1) Assumes an immediate and parallel shift in the yield curve at all maturities.

Our overall interest rate sensitivity is demonstrated by net interest income shock analysis which measures the change in net interest income in the event of hypothetical changes in interest rates. This analysis assesses the risk of change in our net interest income over the next 12 months in the event of an immediate and parallel shift in the yield curve (up 300 basis points and down 100 basis points). The table below presents our projected change in net interest income for the various rate shock levels at ~~March 31,~~September 30, 2016 (the most recent date available) and September 30, 2015.


	Change in Net Interest Income Over One Year Horizon										Change in Net Interest Income Over One Year Horizon
	At March 31, 2016					At September 30, 2015					At September 30, 2016					At September 30, 2015
Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1)	Dollar Change in Net Interest Income (in thousands)			Percentage Change		Dollar Change in Net Interest Income (in thousands)			Percentage Change		Dollar Change in Net Interest Income (in thousands)			Percentage Change		Dollar Change in Net Interest Income (in thousands)			Percentage Change

+300 bp	$	(3,000	)	(14.40	)%	$	(1,921	)	(9.53	)%	$	(2,790	)	(11.14	)%	$	(1,921	)	(9.53	)%
+200 bp	(1,676		)	(8.05	)%	(909		)	(4.50	)%	(1,552		)	(6.20	)%	(909		)	(4.50	)%
+100 bp	(805		)	(3.87	)%	(368		)	(1.83	)%	(678		)	(2.71	)%	(368		)	(1.83	)%
0 bp	(357		)	(1.71	)%	(221		)	(1.09	)%	(290		)	(1.16	)%	(221		)	(1.09	)%
-100 bp	(85		)	(0.41	)%	(309		)	(1.53	)%	(222		)	(0.88	)%	(309		)	(1.53	)%


(1)	Assumes an immediate and parallel shift in the yield curve at all maturities.

Note: The table above may not be indicative of future results.

The assumptions used to measure and assess interest rate risk include interest rates, loan prepayment rates, deposit decay (runoff) rates, and the market values of certain assets under differing interest rate scenarios. Actual values may differ from those projections set forth above should market conditions vary from the assumptions used in preparing the analysis. Further, the computations do not contemplate any actions we may undertake in response to changes in interest rates.


ITEM 4.	CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have designed our disclosure controls and procedures to reach a level of reasonable assurance of achieving the desired control objectives. We carried out an evaluation as of ~~June 30,~~December 31, 2016,, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of ~~June~~December 31, 2016 because of the below material weakness:

Application of Accounting for Accrued Expenses.

The Company did not have effective controls to ensure the completeness, accuracy and proper classification of certain expenses and related accrued liabilities. Management discovered errors in recording certain expense accruals in its unaudited interim and audited annual financial statements for the fiscal years ended September 30, 2014 and 2015 and the unaudited interim financial statements for the quarterly periods during the fiscal year ended September 30, 2016, ~~at reaching a level~~ which were accounted for in non-interest expense on the Company’s consolidated statements of ~~reasonable assurance.~~operations. Management determined professional expenses were overestimated for the fiscal years ended September 30, 2014 and 2015. During the fiscal year ended September 30, 2016, management reversed these overstated accrued expenses, which resulted in an overstatement of quarterly and annual net income for the year ended September 30, 2016.

~~There was no change~~

This material weakness resulted in the ~~Company’s~~misstatement and audit adjustments of financial statement line items and related financial disclosures, as disclosed in Note 2, Restatement of Previously Issued Financial Statements, to our consolidated financial statements included with our Form 10-K filed on December 29, 2016.

During the most recently completed fiscal quarter the Company made the following changes to its internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act ~~during~~in order to remediate the above material weakness:

the addition of experienced accounting staff;

a thorough review of the finance and accounting departments to ensure that the areas of responsibilities are properly matched to the staff competencies and that the lines of communication and processes are as effective as possible;

a thorough review of the processes and procedures used in the Company’s ~~most recently completed fiscal quarter that~~accounting; and

development of a standardized method for the review, approval, and tracking of accrued expenses.

Management believes the measures described above will remediate the control deficiencies the Company has ~~materially affected, or~~identified and strengthen its internal control over financial reporting. Management is ~~reasonably likely~~committed to ~~materially affect,~~continuous improvement of the Company’s internal control processes and will continue to diligently review the Company’s financial reporting controls and procedures. As management continues to evaluate and work to improve internal control over financial ~~reporting.~~reporting, the Company may determine to take additional measures to address control deficiencies or determine to modify certain of the remediation measures described above. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

PART II – OTHER INFORMATION


Item 1.	LEGAL PROCEEDINGS

In the normal course of business, the Company occasionally becomes involved in various legal proceedings. In our opinion, any liability from such proceedings would not have a material adverse effect on the business or financial condition of the Company.

5657


Item 1A.	RISK FACTORS

There are no material changes from the risk factors disclosed in Part I, Item 1A, “Risk Factors,” of the Company’s Form 10-K, for the fiscal year ended September 30, ~~2015~~2016. Please refer to that section for disclosures regarding the risks and uncertainties relating to our business.


Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


(a)	Not applicable.


(b)	Not applicable.


(c)	~~Not applicable.~~Share repurchase activity during the three months ended December 31, 2016 was as follows:



Period	Total Number of Shares Repurchased	Average Price paid per share		Total Number of Shares Purchased as Part of Publicly Announced program	Maximum Number of Shares that May Yet Be Purchased Under the Program (a)
11/1/2016 to 11/30/2016	1,428	$	11.12	1,428	523,772

(a) In August 2016, the Company's Board of Director's approved a program to repurchase up to 525,200 shares of the Company's common stock, from time to time through October 1, 2017, in open market or private transactions, through block trades, and pursuant to any trading plans that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission.


Item 3.	DEFAULTS UPON SENIOR SECURITIES

Not applicable.


Item 4.	MINE SAFETY DISCLOSURES

Not applicable.


Item 5.	OTHER INFORMATION

Not applicable.


Item 6.	EXHIBITS

(a) Exhibits



2.1*10.1		~~Plan and~~Employment Agreement ~~of Merger dated February 10, 2016,~~ by and ~~among Old Murry Bancorp, Inc., the Control Shareholders, Community Bank of Northern Wisconsin and~~between Citizens Community Federal N.A., Citizens Community Bancorp, Inc. and Mark C. Oldenberg entered into on October 4, 2016 with an effective date of January 1, 2017 (filed as Exhibit 10.1 to the Company's current report on Form 8-K dated as of October 6, 2016 and incorporated herein by reference.)
31.1		Rule 13a-14(a) Certification of the Company’s Chief Executive Officer
31.2		Rule 13a-14(a) Certification of the Company’s Chief Financial Officer
32.1**		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
101		The following materials from Citizens Community Bancorp, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended ~~June 30,~~December 31, 2016 formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statement of Changes in Stockholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Condensed Notes to Consolidated Financial Statements.



*	Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request; provided, however that Citizens Community Bancorp, Inc. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules or exhibits so furnished.
**	This certification is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

5758

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	CITIZENS COMMUNITY BANCORP, INC.

Date: ~~August 12, 2016~~February 13, 2017	By:	/s/ Stephen M. Bianchi
		Stephen M. Bianchi
		Chief Executive Officer

Date: ~~August 12, 2016~~February 13, 2017	By:	/s/ Mark C. Oldenberg
		Mark C. Oldenberg
		Chief Financial Officer

5859



Balance at beginning of period	$	—
Select loans and deposit purchase from Central Bank	435
CBN acquisition	3,568
Valuation allowance	—
Balance at end of period	$	4,003



	(Dollars in thousands)
Debt issued by buyer	$	11,000
Cash paid by buyer	6,447
Total consideration paid for CBN	$	17,447

CBN's net assets at fair value:
CBN net assets acquired	$	12,510
Adjustments to reflect assets acquired at fair value:
Investment securities discount/premium, net	(108		)	(2)
Performing loans	(164		)	(3)
Nonperforming loans	(1,168		)	(3)
Allowance for loan losses	1,832			(3)
Property and equipment, net	88			(4)
Deposits	282			(6)
Less: adjusted identifiable net assets acquired	$	13,272

Other intangibles:
Adjustment to recognize other intangibles	(607		)	(5)

Total goodwill	$	3,568		(7)



	Community Bank of Northern Wisconsin			Fair Value Adjustments				Fair Value
Assets	(Dollars in thousands)
Cash and cash equivalents	$	28,104		$	—			$	28,104
Other interest bearing deposits	5,000			(6		)	(2)	4,994
Investment securities	16,825			(102		)	(2)	16,723
Federal Home Loan Bank stock	405			—				405
Loans receivable	113,659			(1,332		)	(3)	112,327
Allowance for loan losses	(1,832		)	1,832			(3)	—
Loans receivable, net	111,827			500				112,327
Office properties and equipment, net	2,741			88			(4)	2,829
Accrued interest receivable	540			—				540
Intangible assets	—			607			(5)	607
Foreclosed and repossessed assets, net	265			—				265
Other assets	1,335			—				1,335
TOTAL ASSETS	$	167,042		$	1,087			$	168,129

Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	151,302		$	(282	)	(6)	$	151,020
Federal Home Loan Bank advances	3,000			—				3,000
Other liabilities	230			—				230
Total liabilities	154,532			(282		)		154,250
Stockholders’ equity:
Common stock	—			—				—
Additional paid-in capital	12,510			(12,510		)	(7)	—
Retained earnings	—			—				—
Unearned deferred compensation	—			—				—
Accumulated other comprehensive loss	—			—				—
Total stockholders’ equity	12,510			(12,510		)		—
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	167,042		$	(12,792	)		$	154,250
Net assets acquired								13,879
Purchase price								17,447
Goodwill								$	3,568



	Citizens Community Bancorp, Inc. Year Ended 09/30/2015		Community Bank of Northern Wisconsin Year Ended 12/31/2015		Pro Forma Adjustments				Pro Forma Combined
Interest and dividend income:
Interest and fees on loans	$	21,641	$	5,698	$	27		(3)	$	27,366
Interest and dividends on investments	1,363		469		—				1,832
Total interest and dividend income	23,004		6,167		27				29,198
Interest expense:
Interest on deposits	3,808		956		199			(6)	4,963
Interest on borrowed funds	630		31		367			(1)	1,028
Total interest expense	4,438		987		566				5,991
Net interest income before provision for loan losses	18,566		5,180		(539		)		23,207
Provision for loan losses	656		84		—				740
Net interest income after provision for loan losses	17,910		5,096		(539		)		22,467
Non-interest income	3,913		463		—				4,376
Non-interest expense	17,719		4,123		91			(4) (5)	21,933
Income before provision for income tax	4,104		1,436		(630		)		4,910
Provision for income taxes	1,490		18		—				1,508
Net income attributable to common stockholders	$	2,614	$	1,418	$	(630	)		$	3,402

Per share information:
Basic earnings	$	0.50							$	0.65
Diluted earnings	$	0.50							$	0.65



	1 to 5		6		7		8		9		TOTAL
Real estate loans:
Consumer	$	179,946	$	—	$	1,260	$	—	$	—	$	181,206
Commercial/agricultural	63,266		—		—		—		—		63,266
Total real estate loans	243,212		—		1,260		—		—		244,472
Consumer and other loans:	203,054		—		547		—		7		203,608
Gross loans	$	446,266	$	—	$	1,807	$	—	$	7	$	448,080
Net deferred loan costs (fees)											2,430
Allowance for loan losses											(6,496		)
Loans receivable, net											$	444,014



	With No Related Allowance Recorded								With An Allowance Recorded								Totals
	Consumer Real Estate		Commercial/Agricultural Real Estate		Consumer and Other		Total		Consumer Real Estate		Commercial/Agricultural Real Estate		Consumer and Other		Total		Consumer Real Estate		Commercial/Agricultural Real Estate		Consumer and Other		Total
Recorded investment at June 30, 2016	$	2,822	$	—	$	410	$	3,232	$	1,848	$	—	$	504	$	2,352	$	4,670	$	—	$	914	$	5,584
Unpaid balance at June 30, 2016	2,822		—		410		3,232		1,848		—		504		2,352		4,670		—		914		5,584
Recorded investment at September 30, 2015	2,494		—		471		2,965		1,972		—		377		2,349		4,466		—		848		5,314
Unpaid balance at September 30, 2015	2,494		—		471		2,965		1,972		—		377		2,349		4,466		—		848		5,314
Average recorded investment; nine months ended June 30, 2016	2,762		—		491		3,253		1,787		—		338		2,125		4,549		—		829		5,378
Average recorded investment; twelve months ended September 30, 2015	3,178		—		485		3,663		2,220		—		556		2,776		5,398		—		1,041		6,439
Interest income received; nine months ended June 30, 2016	85		—		31		116		33		—		6		39		118		—		37		155
Interest income received; twelve months ended September 30, 2015	136		—		35		171		61		—		23		84		197		—		58		255



	May 16, 2016 to June 30, 2016
Balance at beginning of period	$	—
Acquisitions	164
Reduction due to unexpected early payoffs	—
Reclass from non-accretable difference	—
Disposals/transfers	—
Accretion	(2		)
Balance at end of period	$	162



	Acquired Impaired Loans			Acquired Performing Loans			Total Acquired Loans
Contractually required cash flows at acquisition	$	3,698		$	109,961		$	113,659
Non-accretable difference (expected losses and foregone interest)	(1,168		)	—			(1,168		)
Cash flows expected to be collected at acquisition	2,530			109,961			112,491
Accretable yield	—			(164		)	(164		)
Basis in acquired loans at acquisition	$	2,530		109,797			$	112,327

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